All small business owners would like to save money on their tax returns. However, not all of them know how to do it. There are a number of ways that small business owners can save money on their tax returns. Here is a rundown of all of the key things that business owners can do to save money on their tax returns:
Keep thorough records of expenses
One of the absolute best ways that business owners can save money on their taxes is to keep track of their expenses. Small businesses can save money by keeping track of all expenses because business expenses qualify as deductions. This means that they are deducted from the total income a business generates, resulting in a reduced taxable income. Even if you only have a few business expenses, do not lose track of them. Make sure you keep receipts and records of all business expenses so that you can prove they are legitimate in the event of an audit.
Use the home office deduction
Many small business owners run their businesses out of their homes. If you fall into this category and have an office space at your home that you use exclusively for business, then you can qualify for the home office deduction. However, to be eligible for the home office deduction, your home office must be the principal place of business. But, the good news is that no matter what type of home you have, you can qualify for the home office deduction. So it doesn’t make a difference whether you live in a mansion or a mobile home as long as your home office is exclusively used for business.
Contribute to a retirement plan
Contributing to a retirement plan is a great way to reduce your overall tax burden. This is because there are many ways to contribute to retirement that are tax-deductible. If your small business has employees, you can offer them a retirement savings opportunity as well. This not only helps to reduce taxes but also helps to foster employee loyalty. This is because retirement plans are one of the top benefits that employees seek out in an employer. So, think about using 401ks, IRAs, or other retirement savings accounts. You might be surprised at how much money you can save when tax season arrives.
Structure your business the right way
When many people start small businesses, they get set up as an LLC or an S Corporation. It is fine to take this approach. However, many people do not realize that if you set your business up as a C Corporation, you can access certain tax advantages. For example, if you set your business up as a C Corporation, you can have the first $50,000 of your income taxed at 15% instead of 35% if you are in the highest tax bracket. This can make a substantial difference in the amount of taxes that you owe at the end of the year. So, consider getting started as a C Corporation instead of an S Corporation or an LLC if you want to save the most money possible in taxes.
Do not forget about depreciation
When many business owners calculate their business expenses, they neglect depreciation. When assets depreciate, it means that they are losing value as time passes. You can deduct the amount of money that you lose in depreciation for your depreciating assets. Examples of depreciating assets can include machines, equipment, computers, real estate, cattle, etc. There are various methods of calculating depreciation, and the type that is right for you depends largely on how fast your assets depreciate. One of the most popular methods of calculating depreciation is the straight-line deprecation method. This method is best for assets that lose value at a relatively stable rate year-over-year.
Use tax credits to your advantage
The federal government offers a wide variety of tax credits as an incentive to do (or not do) certain things. For example, the government has tax credits for hiring employees, going green, doing research, providing access to disabled employees and members of the public, and providing healthcare coverage to your employees. The more tax credits your company can qualify for, the more money you can save in taxes. You should consult with a tax professional to identify the maximum amount of tax credits you can qualify for. If you do not consult with a tax expert, you could be leaving savings on the table without knowing it.
Use fringe benefit plans for employees
Fringe benefits include meals provided for employee convenience, disability insurance, educational assistance, dependent care assistance, etc. Using fringe benefits can help small business owners reduce their tax burdens because it offers a way for employers to incentivize their employees to remain loyal to the company without raising salaries. Raising salaries can lead to increased taxes. However, offering fringe benefits can help you avoid many of the extra taxes that increased wages would lead to. So, this is definitely a way that small businesses can save on their taxes.
The Bottom Line: Small Businesses Can Save on Their Tax Returns
The more money your small business can save in taxes, the better off your business will be. This is because every dollar that you save in taxes, you can reinvest in your business. Many small business owners are completely unaware of at least several of the tax-saving strategies used in this article. Because of this, they give hundreds or even thousands of dollars to the federal government every single year that they could be keeping.
If there are any tax-saving strategies on this list that you are not currently using, then you should strongly consider looking into them and using them to help you save money during the next tax season.