Small business owners are challenged with the hard task of staying ahead of the competition, operating on thin margins, and grabbing more market share. Small savings such as reduced taxes mean a lot to entrepreneurs, so you can invest the amount saved on taxes to grow your business. Overlooking simple strategies may result in you overpaying taxes, hurting your small business venture. Here, we tell you more about easy ways to cut back on taxes and save more to boost your business.
Invest in Retirement Funds
One of the best ways for small business owners to save on taxes while working towards a financially-secure retired life is to invest in IRS-approved retirement funds. By putting funds in a retirement scheme such as traditional or Roth IRA, you will save on taxes for now, and when you do withdraw money from these retirement funds after you’re 59.5 years old, you’ll likely pay less tax since you’ll be in a lower income bracket by then.
Structure Your Business Right
Most businesses lose out on tax savings because they don’t change the structure of their own as their venture evolves. While most small businesses start off as an LLC or an S corporation, you must keep an eye on when and how to change the ownership title to help you save on taxes. A tax advisor can help explain the nuances of taxation based on the structure of your business. For example, identifying your company as a corporation or C can help you save taxes, since the first $50,000 of your income is taxed at a mere 15% as compared to a higher rate of 35% you’re likely to incur if you’re in the highest tax bracket.
Keep Track of Your Records
Recordkeeping is essential to efficient tax filing for small businesses. Organize receipts and proof of expenditures so you can use them to claim deductions and credits. There are many automated solutions and online apps that help you track and report your income and expenditures for efficient tax filing.
Deduct Home Office Expenses
Many small business owners work from home, making them eligible for tax deductions for their home office. To get a clear picture of the exact tax deductions for your home office, you must first calculate what utilities in your home are being used for your work. Your internet service, for example, qualifies for a tax deduction if you work as a freelance writer or own a digital marketing company.
Give More Employee Benefits
When you hand out income raises to your employees, you’re increasing your tax burden as well as theirs. Instead, reward your employees with additional healthcare assistance, such as increasing your contribution to their medical insurance. This is a great way for business owners and employees to save on taxes.
Using high-quality tax software that serves as an accurate tax calculator can help you file taxes efficiently, accounting for all the deductions and credits that you’re eligible for as an entrepreneur. Small business taxation laws can seem complex. If in doubt, it’s best to consult a tax advisor or use tax software to avoid costly penalties or overpaying.