Published on May 16th, 2021 | by Bibhuranjan0
9 Tax-Saving Tips for Businesses Owners and the Self-Employed
The majority of small business owners have overpaid tax over the last few years. It is better to avoid overpaying than to start figuring out how to get a refund. As such, it is essential for business owners and self-employed individuals to learn tax saving tips.
To learn how to save on taxes, you can carry out research online, or read business taxation laws books. Alternatively, procure the services of a tax accountant or a tax attorney. Or, how about reading this article for easy tips? For complicated things like IRS tax resolution, you definitely need an expert.
Here are nine key tax-saving tips for business owners and the self-employed, and a bonus tip.
1. Acquaint Yourself with All Tax Deductions
Figure out all the tax deductions that apply to your business. This knowledge will go a long way in reducing your final tax amount due at the end of the year. Keep track of all your expenses as you may that information for tax-deductible purposes.
Keep every receipt for all your business expenses. And use an application if possible to estimate how much tax reduction you stand to gain by the end of the tax season.
2. Decoding property deductibles
Did you know you can get a tax reduction for your home office space? There is a formula used to determine the amount of tax deduction. Make sure that the deductible quoted is justifiable to avoid running into problems with the IRS in future.
You can also deduct mortgage interest, home depreciation, property taxes, home insurance, utilities, and home maintenance costs as part of the home office deductible.
The rent of your business premise is also a tax deductible as well as your manufacturing, agricultural, and or business research space. Including all other expenses associated with running it.
3. Lower Your Tax Rate
Structure your revenue to qualify some of your income as capital gains. Ordinary income tax is 39.6% while capital gains tax is between 15% and 20%. You will need the assistance of a tax accountant to advise you accordingly.
You can also reduce your tax rate by hiring your family members. Other ways to reduce your tax rate include;
- Deducting your insurance premium
- Travel expenses
- Education expenses
- Magazine subscriptions
- Marketing and advertising
- Employee reimbursements
- Retirement saving contributions
4. Ask Your Tax Accountant for Tax Saving Tips
Talk to your tax accountant about the possibility of writing off your old and depreciated assets as a means of deducting your taxes and the implications of choosing this option.
Instead of selling old assets such as property and equipment, write them off or abandon them. The write off will enable you to claim the entire value of the assets as an ordinary loss. This deduction is legal and will enable you to reduce your taxes.
5. Include Your Startup Costs and Asset Acquisition Costs
Small business owners can deduct the cost of the property or equipment bought from their taxes during the first year of use. The property tax deductible ceiling for all properties is $1,000,000.
All business equipment have an upper deductible limit of $500,000 on condition that the equipment was brand new at the time of purchase.
6. Control Your Labor Expenses
Hire your employees as independent contractors who can work as and when needed. Contractual labor will also prevent you from incurring statutory deductions that you have to pay for full-time employees.
Also, incorporate an accountable plan that allows you to deduct expenses associated with your employees from your overall tax due. Such expenses include business travel expenses, office expenses, entertainment costs, training costs, and job tools acquisition cost.
7. Track Your Carryover Deductions
Certain deductions have yearly upper limits but are eligible for carrying over to the next fiscal year. You can use these carryovers to save on taxes in subsequent years. Examples include operational and capital losses, charitable contribution deductions, home office deduction, and general business credit.
To maximize on charitable contribution deductible, donate the appreciable stock instead of money. Reason being you can deduct the current value of the stock when you file your taxes. You are also allowed to deduct interest from loans from your total tax due.
8. Make Good Use of the Asset Depreciation Deductible
Assets have an annual depreciation rate that you can use to claim for deductions. Vehicles have a maximum depreciation amount of $10,000 for the first year. The same case applies to property as well as other assets such as manufacturing equipment.
Any other equipment with a depreciation rate will require you to understand bonus depreciation for added depreciation deductibles.
9. Avoid Tax Interests and Penalties
Avoid paying more taxes than you should by always filing your returns and paying your taxes on time. You may not perceive this as one of the most crucial tax saving tips, but federal penalties grow exponentially due to the compound interest charged. Hire a professional to teach you how to file taxes properly and on time.
To fully understand how to maximize your tax saving, you are going to need working knowledge of how taxes work. Make a point to understand the tax jurisdiction of your business’ location.
Remember, ignorance is no defense, and you cannot use this argument to avoid taxation interest and penalties. Also, note that some tax laws vary from state to state. Find out if there are any special taxation laws or reliefs from your industry.
Bonus Tip – Use a Check Stub Creation Service
Using a service like paystub maker is a sure way of getting all your numbers and figures correct. You won’t have to clog your mind with all the numbers and employee details when creating their checks. The process is simple and trouble-free.
You’ll only need to enter your information, preview it, and then download the stub. The service ensures you don’t over-quote numbers hence keep your tax amounts down.
Start Saving on Your Taxes
As a rule of thumb, start organizing your tax records months before they are due for filing. If anything, use a tax filing software to enable you to forecast tax due as you go through the year.
You can also procure the services of a tax attorney to start working on your books should you need to submit them to the IRS for an audit. They will also be more than willing to offer you some tax saving tips based on your current situation. They can also assist you in getting tax penalty relief for prior tax mistakes.
Photo by The New York Public Library on Unsplash