Running a small business has an expense of its own. For an entrepreneur, every dime counts! For a small business owner, investing in a company with an idea and a vision to make a niche for itself in the highly competitive market is always a risk. Moreover, complicated tax compliance norms make things more complex for owners.
Generally, one has to pay at least 90% of the tax for the running year and 100% of taxes due for the previous year.
Business owners are not tax professionals; they are unaware of the nitty-gritty of how to save while paying the taxes so that you can invest the amount saved for other, more crucial business purposes.[contact-form-7 404 "Not Found"]
Here are some tax-saving hacks suggested by experts for small businesses to save money; let’s read them all.
1. Invest in Health Insurance Policies
Kate Gross from Fix the Photo
One great and beneficial way to avoid taxes is to start investing in a health savings account. To be eligible for this benefit, your contributions to the health account must be high. As a single person, you should be contributing at least $3500 per year and more if you are married. This is a great way to reduce your taxable income and sort out medical expenses if there is ever a need in the future.
2. A Well-Defined Business Structure
Choose or change your business structure. Whether you are a sole proprietor, in a partnership, or a corporation, your business structure also affects the amount of tax you pay. Get the advice of your lawyer or accountant first before deciding on a change. Know what will be expected regarding your taxes in the future. Also, be aware of the changes when choosing to scale the business when you have a new business structure.
3. Become Tech-Savvy with Tax-Saving Software
Eden Cheng, Founder, WeInvoice
This hack applies to the tax-savviest entrepreneurs as it offers significant protection to small business owners. Therefore, leading platforms like TurboTax, TaxSlayer can help you build and file your tax return online with maximum accuracy. Moreover, you will get superior refund guarantees too.
4. Environmental Friendly Approach
Rachel Klaver, Co-Founder of Identify Marketing
If you want a tax break, then go green! This is one saving that not many people know. You can improve your home and get a tax break at the same time. This is in connection with the government’s objectives to encourage people to go green. You can also save a lot in the long run when you invest in this environment-friendly equipment. You can get a tax credit for renewable home energy systems. If you’re utilizing a home office, then you can use this. This credit covers 30% of the cost of solar electric and solar water heating systems you put in your home. It’s a bit costly to put up these types of equipment in your home but think about it. You can get much savings in the long run, and you get 30% back through a tax break. What more can you ask for!
5. Roll Out Retirement Plans
Phil Crippen, CEO of John Adams IT
I recommend establishing and funding retirement plans for employees to save money on taxes for a business. (You can even set up and fund a retirement plan for yourself.) The key is to make sure that each retirement plan qualifies under IRS guidelines. Otherwise, it’s difficult to experience tax savings. If the plan qualifies, the IRS should give the green light to apply a tax deferment for earnings until the earnings get withdrawn. This processes can focus on defined contribution plans like a 403(b) and, of course, a 401(k). IRAs also fall under this category.
6. Pay Yourself
John Webster, Owner of Wiringo
You could pay yourself in a number of ways: salary, dividends, benefits-in-kind. Paying oneself is important because it has an impact on how much tax you’ll be paying every year and also the amount that goes into your pension pot. Payslips are very rarely paid out by bosses these days, so if this is what you want to do, then make sure there’s enough cash coming in, which will have to cover not only salaries but other things like pension contributions too.
7. Tax Benefits to Consider while Selling the Business
Andrew Latham, Managing Editor at Supermoney
Selling a business can be an expensive move from a tax perspective, but it does not have to be. Many small business owners don’t know they can exclude the first $10 million of the sale of an S or C corporation from income taxes.
The exclusion applies to all founders of the company and stockholders who received their stock directly from the company. However, you have to hold the shares for at least five years, and it only applies to companies with less than $50 million in assets. Partnerships and sole proprietors don’t qualify for this exception. Forming and maintaining a corporation is time-consuming and more expensive than other business structures. However, it’s worth considering even for smaller companies, especially if your exit plan includes selling your business.
If selling your business is a real possibility in the next five to ten years and you’re not a corporation, talk to a tax attorney to make sure you have the right business structure for your company.
8. Proper Utilization of All Available Tax Deduction Options
Sam Browne, CEO and Founder of Find a Band
I believe that one of the most important tax-saving hacks that most business owners often miss is to utilize all of your Tax-Deductible Expenses. If you spend money on your business, it’s likely that you’ll be able to claim the expense as a deduction, lowering your taxes. I’ve put together a list of the different types of company costs you can deduct, and here are some of the most common ones:
- Home office expense: If you work from home, you can deduct a percentage of your household costs based on the amount of space you use to conduct your business. You can deduct 15% of what you spend on electricity, gas, and other utility expenses if you use 15% of your house completely for business purposes.
- Repairs and maintenance: If you need to make repairs to your house, you may be able to deduct the same percentage as you do for your business.
- Car mileage: If you drive for work, you may be able to deduct some of your vehicle expenses. These do differ, and you can learn more about automobile costs here.
To deduct certain expenses, you’ll need to meet certain conditions, so check with your accountant to see what’s deductible.
As a small business owner, you must know ways to save taxes. A well-formulated approach needs to be developed by applying the tax hacks you just learned above. Correct Utilization of all the available tax deductions options for your business will save you money for further investments.
At Cogneesol, we help you eliminate your tax filing woes and reduce your tax liability by filing all applicable write-offs. Our team of tax specialists will help you prepare your business taxes accurately through our customized tax preparation services. Call our experts today at +1 833 313 3143 or email at firstname.lastname@example.org.
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