As a small business owner, maximizing your savings is key to maintaining profitability and long-term success. And while there are a number of different strategies and tactics you can use to save money on everything from operations costs to employee salaries, one area that often goes overlooked is taxes.
As an expert in business taxes, I’ve worked with countless small business owners over the years to help them reduce their tax burden and increase their overall savings. In this article, I’m going to share some of my top tips and strategies for maximizing your savings through smart tax planning.
1. Take Advantage of Deductions and Credits
Potential tax deductions and credits may come in handy for small business owners looking to save some cash. One of the best-known strategies for minimizing taxable income during the filing process is deducting business-related expenses. As a small business owner, your operations require certain expenses like rent and electricity, among others. So it will not come as a surprise that if these expenses meet specific criteria, you can deduct them from your business’ gross income.
It’s important to note that not all expenses may qualify for a deduction or credit, so it’s important to keep detailed records of everything you spend on your business throughout the year. Some popular deductions include:
– Home office deductions: if you work from home, you can claim a portion of your rent, mortgage payment, and utilities as a deduction.
– Business vehicle deductions: if you use a car, truck, or other vehicle for business purposes, you can deduct the cost of depreciation, repairs, and fuel.
– Start-up expenses: first-time business owners can deduct up to $5,000 in start-up costs such as legal fees, research and development, and marketing expenses.
2. Use Retirement Plans
Retirement plans can be highly beneficial to small businesses looking to save some extra dollars. By establishing an employer-sponsored retirement plan, the business owner, and other employees can benefit from the tax savings associated with contributions to it. These plans allow for pre-tax contributions to be deposited into the account, which are then invested and allowed to grow tax-free. By lowering taxable income, small business owners can pay lower tax in the long run.
There are many different types of retirement plans to choose from, including 401ks, IRAs, and Keoghs. Each has its advantages, so it’s essential to consult with your financial advisor to determine which plan best suits your business and financial goals.
3. Hire Independent Contractors
Hiring independent contractors instead of employees can be quite helpful beyond administrative costs; new employees can translate to more significant tax returns in payroll taxes, health insurance and other expenses. Instead, engaging independent contractors to execute specific project-based or skill-oriented duties, can save a significant amount of money that would otherwise have been spent.
4. Keep Up With Changes in Tax Laws
Tax laws evolve regularly, and as a small business owner, you need to keep up with these changes to get the most out of your taxes. By monitoring the latest tax developments, you can alter your business strategy accordingly to minimize your tax liability.
The Tax Cuts and Jobs Act is one example of a critical tax reform that small business owners need to understand. This Act lowered the corporate tax rate from 35% to 21%, creating some relief for significantly profitable industries. It’s essential to take advantage of these changes and legislation to make the most out of tax-related benefits that would interest small-scale businesses.
5. Get Professional Help
Small business owners must find experienced financial professionals to help with their tax planning. Financial professionals possess technical knowledge and recommendations of law changes, regulatory updates, and best practices. Financial professionals can also provide tax compliance updates during the tax season, helping small-scale businesses stay productive while reducing the risk of penalties, fees, or audits.
Saving as much money as possible is a priority for small-scale businesses to have long-term sustainability. And while tax obligations no doubt present challenges for business owners at all levels, there are specific practical guidelines you can observe to minimize your tax burden. By following the above tips, you can maximize your financial returns while avoiding unnecessary penalties and fees.
In conclusion, mastering business taxation can be challenging, but with the right approach and guidance, it is possible. As a small-scale Business Owner, retaining a Financial Advisor can remove the complexity of taxes and also offer guidance in the right direction, allowing the best opportunities for higher returns to save more money.