Tax season is quickly approaching. If you are running a small business, taxes are likely among your biggest expenses. However, there are multiple safeguards available to small businesses that help protect them from overpaying on taxes. Your business can save on taxes this year by deducting business expenses, setting up a retirement plan, and taking out tax credits.
As a business owner, you can reduce your taxable income by maximizing business expense deductions that you are entitled to. Business expenses that qualify for a deduction include transportation, depreciation of equipment, insurance, rent, taxes, and so much more. To determine whether an expense qualifies for a deduction or not, find out if the expense is commonly accepted in your industry and if the expense is necessary for operating your business. Deducting these expenses from your total income will reduce your taxable income, helping you save.
Set Up a Retirement Plan
Setting up a retirement plan for yourself or your employees can help you save money on taxes. A qualified plan must be recognized by the IRS to allow deferment of taxes on your earnings until the earnings are withdrawn. A couple examples of qualified retirement plans include IRAs and 401(k) plans. A 401(k) plan allows both employees deferrals and employer contributions. These plans let you avoid paying taxes on the money you put away until you draw the money out again. You will have to pay taxes eventually, but it is one option that prevents you from paying taxes immediately.
Take Tax Credits
Tax credits are the federal government’s way of encouraging businesses and individuals to do certain things that affect the greater good. For example, you can take tax credits for hiring employees, implementing environmentally friendly practices, and providing access to the disabled. You can also earn tax credits for contributing to retirement plans and providing health coverage for your employees. Check with the general business credit to see what actions you can take that will qualify you for tax credits that lower your business income.
Before making any final decisions on how you can cut tax expenses, be sure to check with a qualified tax advisor. Your accountant can either help or introduce you to someone who will know all of the ways you qualify to save on taxes. Every business is unique, find the right strategy for you to save money and thrive.
Check out this article on expenses to think about before setting up your business!