Gregory L. Williams
11 Ways to Reduce the Tax Burden for Your Small Business
Everyone worries about taxes and looks for ways and means of reducing their tax burden. But for business owners, this worry can be especially acute because there are additional taxes, different reporting requirements—and more financial landmines to avoid. When you own a small business of your own, you must update your knowledge of tax laws and understand accounting systems and tax planning. And this is true even if you have an accountant (and you should!) because as a business owner, you need to have at least a finger on the pulse of every component of your business.
To help you evaluate whether the tax pulse of your business is going too fast, too slow, or is just right, below are 11 tax tips. They range from ways of maintaining business expenses and filing receipts to planning on tax saving investments and strategies for running the business. Along with your accountant, you should consider these tips to help ensure that you're running your business in the most beneficial way.
- Reduce your tax liability by hiring family members to carry out work in your business. Pay your children and spouse to perform assigned duties. This way you can shift from higher tax rates to lower ones.
- Hire independent contractors instead of employees. You will save on payroll taxes.
- Defer income to January of the following year instead of December of the current year. Income for January payments will be up for tax calculations a year away. These benefits are dependent on profit and losses for the year and your corporate legal structure, so discuss with your accountant first.
- Take advantage of tax deductions allowed for charitable donations. Make donations in November or December instead of January so that you can include them for tax deductions in the current year.
- Maximize your expenditure on equipment and office supplies. Buy in advance for a quarter and use the tax deductions allowed in the current fiscal year.
- Include expenses of business-related travel in the current year.
- Pay all bills due before the end of the year. Payment to cell services, rent, insurance, and utilities (for example) related to the business can be included for accounting and applicable tax waivers.
- Plan a retirement plan and make payments before the end of the year, which reduces your income for the year and the tax due. Plan a feasible and beneficial strategy with your accountant.
- Deduct money paid for licensing fees, businesses taxes, annual memberships to businesses-related organizations, interest and related charges on money borrowed for running the business, and insurance premiums to ensure the business property from your taxable income. These are all are eligible for tax deductions.
- Check whether you have deducted management and administration expenses as well as money spent on maintenance and repairs of equipment.
- Finally, decide whether a cash accounting system or accrual one will benefit your business. The tax deductions are different depending on the system you use. When you're setting up your small business, take the advice of a tax and accounting professional as to which accounting system would be most suitable.
If you have any questions or concerns, please give us a call. We help entrepreneurs plan for their future, protect and grow their business, and provide for their families through business counsel and process improvement.