Small Business Tax Tips

Reading time: 5 minutes

5 minutes read

Category: Business Services
Posted on: 03/09/2021
the owner of a clothing shop at her desk doing paperwork at a laptop

If you run a small business, then saving money in taxes can help you have more money to reinvest into your business or put it into your bank account. However, even though saving money in taxes can be extremely beneficial for small business owners, many do not know how. This article will break down some of the best small business tax tips that you can use to save money on taxes this year.

Keep a close track of receipts 

If your business has expenses, you can write these expenses off at the end of the year and get deductions. The more deductions that you have, the less that you will ultimately have to pay in taxes. Many business owners miss out on tax savings simply because they do not keep track of their receipts. Do not make this mistake; just keep track of your receipts instead.

Avoid penalties 

Many small business owners receive penalties from the IRS because they either file their taxes late or make their tax payments late. It is a very simple concept, but you can save a substantial amount of money in penalties if you do everything on time.

Take advantage of Section 179 opportunities 

If you are unfamiliar with Section 179, it is a clause in the US tax code that allows small businesses to deduct the full purchase price for qualifying assets that were financed during the tax year. Section 179 deductions are great for businesses who need to purchase equipment during the year. There are rules and limitations for what you can deduct with this clause, so be aware of them before you try to use Section 179. Consult a tax professional if you have questions about using Section 179.

Offer Benefit Plans to Your Employees 

Many employees value benefits just as much as they value increased pay. But, if you offer benefits, you can deduct the cost as business expenses in many cases. So, offering benefits can actually help you to save money. Offering increased pay can increase your payroll taxes, whereas benefits can be deducted as a business expense. So, wherever possible, consider offering benefits instead of increased pay.

Take Advantage of Depreciation 

Many business assets depreciate over time. Depreciation expenses can be calculated and deducted as a business expense. Assets that depreciate, including vehicles, machinery, equipment, real estate, livestock, and more. If your business has assets that decline in value over time, there is a very good chance that they can qualify for depreciation deductions. You should speak to a tax professional to see if your assets can qualify for depreciation-related business expense deductions. If they can, then you can potentially save a great deal of money in taxes. For some small business owners, deprecation deductions save tens or even hundreds of thousands of dollars in taxes.

Deduct Home Office Expenses 

Many small business owners work from home. If you have a home office that you use exclusively for business, then there is a very good chance that you can qualify for the home office deduction. Depending on how large your home office is and how many expenses are associated with running it, you could potentially save hundreds or even thousands of dollars in taxes from your home office. So, do not forget to deduct expenses related to your home office. If you are unsure whether your home office qualifies for the home office deduction, you should speak to a tax professional to clarify this.

Deduct Travel Expenses 

Unfortunately, a lot of small business owners do not realize that they can deduct expenses for travel. This causes them to miss out on a lot of deductions that they could otherwise get. Travel expenses such as hotels, airfare, rental cars, etc., are all deductible. You can even write off certain food expenses also when you are traveling. Travel expenses are great expenses to write off because many small business owners have to travel when they are starting their businesses. For example, many small business owners have to travel to trade shows, conferences, sales meetings, meetings with suppliers, etc. If you travel a lot, then make sure that you write off your travel expenses.

Make Charitable Contributions 

Charitable contributions are tax-deductible. However, you do not need to donate money. Suppose you run a restaurant and have leftover non-perishable food or run a toy store and have leftover toys. In that case, you can donate these things and receive charitable contribution tax deductions. Just make sure that if you do make charitable contributions that you get the receipt for your contributions.

Deduct Certain Insurance Expenses 

Certain insurance expenses such as malpractice insurance, worker’s compensation insurance, and property insurance are generally tax-deductible. Many other different types of insurance expenses are tax-deductible too. When it’s time to take care of your taxes, you should go through your books and make sure that you know every time of insurance your company has. Check with your accountant or tax professional to see which type of insurance can qualify for deductions. Then, make sure that you get all the deductions that you qualify for.

The Bottom Line

No small business owner likes to pay taxes. However, unfortunately, the vast majority of small business owners have to pay them. If you own a small business and if your business is profitable, you will almost certainly have to pay taxes. However, if you can follow the advice in this article, you can dramatically reduce the amount of taxes you have to pay each year. The more tax savings strategies that you know, the better. Just make sure that you always consult with a tax professional if you have any questions about your tax savings strategies. The last thing you want to do is face an audit or penalties because you made an unnecessary mistake.

Finance Guru

Finance Guru