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14th of November 2018

Women



How To Minimize Your Business Taxes

business tax

Sponsored by IncFile:

Going into business for yourself is an exciting adventure that you wouldn’t trade for anything, but as soon as you begin to make profits, you’ll soon realize how important it is to find ways to minimize your business taxes.

There are 100% legal ways to significantly reduce tax expenditures and thus boost your bottom line. However, it takes planning and organization to take advantage of them.

Feel like you’re being turned upside down by Uncle Sam and forced to watch helplessly as he empties your entrepreneurial pockets? Here are five key ways you can reduce what you pay for the privilege of doing business in the USA:

1. Change Your Business Structure

One of the most basic ways to gain flexibility come tax time is to upgrade from a sole proprietorship to an LLC style business structure. A limited liability company not only can reduce the level of personal liability of the business owner, but it can also help you save money on taxes.

LLCs can file as S corporations for tax purposes, allowing the business owner to pay him or herself and tax that salary as personal income only, reducing the amount of business income on which self-employment tax must be paid. That often ends up saving you big money!

2. Use Top-Tier Financial Tools

It’s well worth a small investment into business tax specific software tools, such as Quickbooks, to keep your finances well organized all year long.

You may not be a CPA nor able to afford paying one to do your bookkeeping. However, modern tax prep tools make it very simple to just enter the relevant information and then let the program guide you in making calculations necessary for informed business-tax decisions down the road.

3. Make Smart Deductions

Not getting your full deductions or the best deductions when there’s an option is a common reason why small business owners often end up paying more taxes than they need to.

Be sure to look into, for example, whether actual cost vehicle deductions or the mileage-based option (53.5 cents per mile) is more beneficial or whether the actuals for your home office versus the $5 per square foot method works more to your advantage.

Also, realize you can often deduct business insurance expenses, such as general liability, workers comp, and commercial auto.

4. Use Tax Shelters

Set up a 401k, IRA, or other qualifying retirement plan, and your contributions to it are 100% tax deferred. That reduces how much you pay now in taxes, plus when you use the account’s fund later in life, you’ll likely save on taxes because you’ll be in a lower tax bracket than you were back when you earned that money.

Also consider using a whole life insurance policy as a tax shelter. Many life insurance plans allow what you pay in premiums to be either tax deferred or 100% and permanently not liable to taxation.

5. Don’t Neglect “Carryovers”

There are some tax deductions and/or credits that can only be taken up to a certain limit within a particular tax year. BUT, you may be able to carry the remainder of the tax benefit over into subsequent years – so don’t lose track of them! Such deductions include: capital losses and net operating losses, charity donations, and home office deductions. Many business credits can also be carried over.

These are only five of the numerous ways you can reduce the tax burden your business, and you personally as a business owner, must bear. A penny saved is a penny earned, and in this case, the pennies can really add up!

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