Entrepreneurs are always looking for ways to reduce the taxes they owe the government. They are searching for deductibles and exemptions so that they can use more of their money to build their business rather than pay the government. The Internal Revenue Code understands this as well. They set up many rules and policies on giving businesses leeway for different reasons—low revenues, hiring family members, donations to non-government organizations, and many more.
How you maximize these exemptions and deductions depends on your accountant or tax attorney. If you are doing your taxes yourself, then be careful lest you make it even worse. If you are not sure about what to do with your business taxes, hire the right people to do the job for you.
Employing a Family Member
Do you know that you become eligible to shelter a portion of your income by employing a family member to your business? This is the reason why small business owners would usually hire their kids and nieces because they can eliminate the tax on the income paid to their children. Sole proprietorships that hire their children need not pay Medicare taxes on their wages. They are also exempted from the Federal Unemployment Tax Act. If you decide to hire your spouse, that’s okay, too, since they will not be subjected to the unemployment tax. Depending on the benefits they get from their actual and regular job, you might even set aside retirement savings for them.
Traveling and Accommodation
If your business has a multitude of branches, then you are bound to travel to different places. Don’t forget that travel and accommodation can be categorized under business expenses and thus, are deductible from the taxable income of your business. Even if you are merely meeting clients and investors, you can still deduct that expense from your business’ taxable income.
Analyzing Cost Segregation
Aside from the business taxes, you are also paying property taxes for the assets that your business is using in its operations. You can look for cost segregation services that will analyze the reclassification of your business assets. As long as the reclassification meets the federal government’s standards, the Internal Revenue Service has no reason to deny your request. Cost segregation studies are used to determine which of your property’s components belong under which category. This is a study that will drill right down to the individual electrical outlets.
Starting Retirement Plans for Employees
Part of your job as a business owner and employer is to ensure that your employees save enough for retirement. Many think that building a retirement portfolio is expensive, so they don’t make this an option for their employees. In truth, retirement plans can help you maximize and reap valuable tax benefits. Some of the retirement programs that you should look into are 403(b) plans, IRA or ROTH IRA, and Simplified Employee Pension Plan (SEP).
Changing Your Business Structure
A Limited Liability Company (LLC) business structure is better than other types of business structure. If you are a sole proprietor, you need to pay the entire amount of your taxes and other benefits—from Social Security to Medicare taxes. An LLC business will eliminate the employer-half of those taxes. It will be similar to being an employee whose taxes are covered by their employer. This is the kind of business structure that small businesses will benefit from, tax-wise.
Taking Tax Credits
The federal government created tax credits for small businesses. The purpose of these tax credits is to encourage businesses to do things or not to do things such as going green, hiring disabled people, providing health coverages, and many other things. Make sure that you are well-versed in these tax credits so that you can take advantage of them.
Going green, for example, might have a huge upfront cost for your business, but if you can have tax deductions for it, then you will reap the rewards in the long run. The list of tax credits is extensive, especially now during the pandemic, so check with your accountant where you can benefit from the most.
Before you try to do any of these things, make sure that you talk with a tax attorney or qualified tax professional. They can discuss with you many ways to reduce your business taxes. And while there are unscrupulous things you can do to lower your taxes, resist the urge to do these things. The way to a successful business is through committing to honest hard work that you and your family can be proud of.
