If you’re a small business owner, you know that every dollar matters – especially when it comes to your taxes. Whether your business is a corporation or a partnership the government offers some sizeable deductions to lower your liability, allowing you to put those precious dollars toward your capital and employees.
Looking for ways to save on small business tax? Reputable Mount Pleasant NC CPA, Susan Gordon Lee, shares 5 ways to reduce your small business taxes.
1. Consider changing your business structure.
Choosing the right business structure can result in substantial business tax savings.
Generally, small businesses benefit most as pass-through entities, where you and your business are considered one taxpayer. In most pass-through types, your business income is taxed at your individual tax rate.
On the other hand, you can cut down on payroll taxes by choosing S corporation taxation. S-corp owners who take part in management are considered employees and get paid through dividend distributions and salaries. What’s noteworthy here is that dividend distributions aren’t subject to payroll taxes.
If you’re looking for a non-pass-through option, you can choose the C-corporation structure where a 21% entity-level tax applies to all business income before it gets passed on to owners, known as shareholders.
It’s a big deal to choose a new business structure or a new tax status. You’ll want to consult a Mount Pleasant NC CPA or a tax attorney before changing your business structure.
2. Save every receipt.
Receipts create a financial roadmap of how you’ve spent your money throughout the year. Many of those receipts are for services and goods that can be deducted from your taxes, offsetting taxable income. Moreover, depending on your business structure, there are certain deductions that you can take for specific structures, plus deductions that apply across all structures.
It is uncertain whether an expense counts as a business deduction? Save the receipt, do some research, or talk to a tax professional.
3. Set up and fund a retirement account.
Whether you’re a solopreneur or have employees, you can get a tax benefit for setting up and funding a retirement plan, such as an individual retirement account (IRA) or a 401(k).
Solopreneurs are eligible to start a solo 401(k), also known as a one-participant 401(k). Your contributions are tax-deductible up to a certain limit, but you’ll still pay income tax on the contributions upon withdrawal during your retirement.
Business owners can also take part in the traditional 401(k) they offer to employees. Employee retirement plans can help you save on employer payroll taxes since they lower the number of employee wages subject to the Federal Unemployment Tax Act (FUTA).
4. Donate your old business equipment.
Here’s a great end-of-year tax tip: Look around your office and look for equipment you’re no longer using–and donate it. You can deduct the fair value of your old office equipment and furniture when you donate it to a 501(c)3 nonprofit.
However, if your old equipment is too shoddy to donate, you can claim a Section 1231 loss for throwing it out. Talk to a Mt. Pleasant North Carolina Accountant about taking a loss for abandoning equipment.
5. Use tax filing software.
While this tip may be a no-brainer for some business owners, it’s still an important point to make. Using tax filing software can offer protection that a small business owner may not be able to afford otherwise.
Using platforms like H&R Block and TaxSlayer can help you prepare and file your tax return online while backing up that filing with accuracy and maximum-refund guarantees. Getting a “shield” that guarantees the accuracy of your return – and offers sure reimbursement of any penalties or fees you’ve been charged – makes every other tax obstacle easier.
Bottom Line
Tax season shouldn’t be the only time you’re thinking about your taxes. Keep these tax-saving tips at the top of your mind throughout the year so you’re prepared to maximize your credits and deductions on your tax filings.