How would you feel about saving thousands of dollars on taxes every year? You would be excited at the prospect and motivated to work harder. You could also continue planning for that vacation you've always wanted. In this article, you'll find out what small business entrepreneurs do to reduce taxes and grow their companies while maximizing their income.
Let's dive in!
Put Family Members On Payroll
You'll reduce taxes by employing your child or spouse. The IRS policy states that kids incur a lower marginal tax rate or none, and you can use that loophole to your advantage. However, ensure that you can explain how your payments relate to your business.
For example, a sole trader can hire and pay their child, making the wage free from social security and hospital insurance tax coverage. Similarly, hire your partner, and you’ll benefit from exemption from the Federal Unemployment Tax Act (FUTA).
Evaluate Business Leaks
The most dreadful thing for entrepreneurs is paying tax that exceeds their income bracket. Why? Because they miscalculated their revenue. Luckily, the best way to save money on small business taxes is to maintain good business practices.
How can you put this into practice?
You make a list of every incoming and outgoing cash in your business. Also, don't ignore the small expenses. They pile up to equal hundreds or thousands of dollars in 12 months. And you can use that money to scale your business, fix inefficient enterprises, or just enjoy a family vacation.
Soon, you'll realize that tracking your business’s progress over the year is the most efficient way to reduce taxes. This strategy benefits you more than diverting your income to personal expenses like mortgage payments or donations.
Monitor Trip Expenditures
The IRS allows small businesses to cut travel expenses from their deductible income. This loophole includes the money you've spent in restaurants, accommodation in lodgings and hotels, and transport (air, water, or road). But there's one precaution you ought to consider.
One must be as honest and detailed as possible to provide a solid and verifiable narrative of how you used the money for your business.
For example, you can use the trips to connect with other entrepreneurs working in a similar niche. Or you can use the scenery to get a fresher perspective about your business, helping you do better work.
Be careful with this strategy. Any hint of a vacation, and you have yourself to blame for the horrendous harassment from the IRS agents.
Deduct Rent and Utilities
Reduce the tax payable for your business by tallying every cost to your expenditure. Examples include your rent, water, and electricity bill, cleaning and maintenance, internet and airtime to call clients, and even the office coffee you drink.
The underlying theme is that if your business depends on those costs, you can remove them from the taxes. Tracking all those damages every day over a year may prove tedious—but it'll save you a lot over the long term. It's the little losses that cost the most.
Help Others, Help Yourself
The IRS says you can cut the amount you pay to philanthropic institutions or non-profit organizations from your deductible income. This strategy provides a win-win situation. You get to help the less fortunate and emphasize your brand values.
For example, you can pledge to donate a certain percentage of your income to a charity. Or perhaps, you can involve your fans or customers in a challenge where winners decide the charity you should donate to.
And there's no more effective brand-building strategy than that one. People's altruistic views will boost your business visibility. And you'll enhance loyalty with existing clients.
One thing that intimidates small business owners from handling taxes is that they're already tired and need to do their books. They then miss a day or two only to encounter a work pile that gives them more reason to procrastinate.
"I could be doing better things," they tell themselves. And they're right. They could be.
But picture this. You have software that scans, records, and stores every receipt you've made for your business—no risk for missed receipts, easily searchable, and well-organized. You also get to note down the little recurring expenses and prevent them from eating away at your income. You'll get that convenience through bookkeeping software.
Automation programs are also utilized by CPAs to simplify and digitize your financial records.
Get a Professional Accountant
Hardworking, brilliant, and clever accountants make tax payments less painful and more fruitful.
Sure, you might calculate the taxes yourself, but consider how much you should know about tax laws and the nuances in IRS policies. Furthermore, look at the size of the books you'll be handling for the whole year. Can you sense an incoming burnout?
More importantly, you don't want to miss slight details that could cost you later. Nor do you want to overlook opportunities to save money. Hire an expert and save yourself the trouble. These people have dealt with many businesses like yours, and they know tactics that work to reduce your tax bill.
Pay a premium for a quality CPA to do your books. Otherwise, remember that you get what you pay for. This person is an asset to help your small business thrive.
Best CPA in California
There are many ways to save money on small business taxes. You can employ and pay family members, analyze business losses, cut travel expenses, automate tracking records, hire a professional accountant, and donate to charities. Some costs may seem negligible, but with consistent commitment over a year, they become significant deductions. Contact Chris Haro CPA to start saving the most on your business taxes. Chris and his team have filed thousands of tax returns over the past 10+ years. Let’s get started on yours.