Many small business owners find the current tax system challenging, and that owning a
business is sometimes more expensive than being paid a salary as an employee. But with proper tax planning, small business owners can have a hassle-free experience when
they file their yearly or quarterly taxes. Here are a few tax planning tips for small businesses to set themselves up to be in the best possible position for next year’s taxes.
Maintain excellent records on a daily basis
It is very important to keep track of all the cash that you bring in and all the cash that you
spend. Maintain your records from the very first day of starting a business. There are many good accounting software programs that are available to keep track of all your transactions. Keep all receipts and invoices of business operations and expenses. Ensure that the receipts and invoices match the entries in the accounting program. Do this, and you will no longer dread the year-end tax time.
Hire a qualified accountant
Hire a Certified Professional Accountant who will offer valuable financial advice on how to plan your taxes, and also take care of the actual filing of paperwork. Remember that
inaccurate or inappropriate filing of taxes can attract stiff penalties and unwanted attention from the taxman. As a small business owner, you may not have the time or expertise to dig through your company’s accounts. A qualified professional can make your life easy when it comes to tax planning.
Take advantage of all business expenses and tax deductions
Businesses can deduct a wide variety of expenses such as rent, advertising, travel, software, commissions, etc. In order to be considered deductible, a business expense must be both ordinary and necessary. There are many deductions that are available to you which you may not know about. Take some time to research different types of deductions that are allowed for small businesses, such as home office deductions, automobile deductions, entertainment expense deductions etc. Your CPA will be able to help you identify these expenses. Maintain records for all of these.
Check if there are any business tax credits that are available to you
As a small business owner, a business tax credit can be quite valuable to you. For example, if you offer insurance to your employees, you may be eligible for tax credit for up to as much as 50% of the premiums that you pay. There is also the work opportunity credit if you hire individuals from a certain groups with high levels of unemployment. Work with your CPA to find out all the tax credit opportunities that are available to you.
Classify your business appropriately
Different types of businesses attract different tax liabilities and rates. Do some research to decide which type of business entity is the best option for you. Sole proprietorship, Limited Liability Corporation, partnership, C Corporation, S Corporation etc. are some of the options.
Buy assets to save on taxes
Whenever you buy new software, furniture, technology, or equipment for your small
business, keep detailed records and save all the receipts in order to claim expenses on your tax return. Section 179 of the IRS code helps small businesses by allowing them to deduct for depreciation in one year rather than over several years. Tech assets purchases can be written off up to $250,000. There might be several assets in your company that are eligible for a section 179 deduction. Use them to your advantage.
Make sure that all your records are up-to-date and accurate so that you can minimize your tax bill. You can learn more about tax planning for your small business from the IRS website.