Small business tax tips that will save you money
Are you a small business owner? Are you looking for ways to save your money on taxes?
Well, you have landed on the right page!
When you start a small business, you might have less income in the first couple of years. But once you become well aware of all the aspects of your business, your income grows. And with that grows your tax liabilities.
That is when you need to be proactive in your tax planning so you don’t get surprised by unexpected, huge bills.
You need to have some effective tax-saving strategies in place to run a successful small business. And that is exactly what we are going to help you with.
Tax tips to make the most of your small business
Here, we have come up with a bunch of tax tips to help you lower your small business’s tax bill. Implement them today and see the difference in your savings.
Keep reading.
1. Opt for home-office deductions
Did you know that you can save a lot on your tax return through home office deductions?
If you own a small business that you operate from your home, you might want to go for this. According to the IRS, renters, as well as homeowners, can claim this deduction. This means you can claim a tax return even if this space of yours is leased. You can get this benefit for all kinds of rooms, including a studio apartment or houseboat.
In order to be eligible for this deduction, there are two requirements that your space must meet:
- Your home office space must be used solely for your business needs. For example, you can’t use it as a bedroom for your guests and your office at the same time.
- It should be your main and only place of business where you do management and administrative activities such as bookkeeping, making sales calls, and billing customers.
2. Defer your income
The amount of money you pay as your income tax depends on the amount of money your small business has made in the previous calendar year. This means if you make a lot of profits, you have to pay a lot of taxes as well.
But of course, if you want to lower your tax burden, you can defer or postpone some of your income until the next calendar year. For this, you can extend the due dates or postpone sending your invoices. Remember, your income tax is calculated on the basis of when you receive the payment.
3. Donate your old business furniture
Is there anything in your office that you are not using? It can be anything from your old chair to your old printer.
If you donate them to a 501(c)3 nonprofit, you will be eligible for the deduction of their fair value.
In case your old office furniture or equipment is too old to donate, you will be eligible to claim a Section 1231 loss to throw it out.
4. Make a solid retirement plan
Whether you handle your small business all alone or you have employees working under you, you can avail a tax benefit by contributing to a retirement plan.
Solopreneurs can open a solo 401(k), which is also known as a one-participant 401(k). There is a limit up to which your tax can be deductible. But you have to pay your income tax on the basis of your contributions upon withdrawal during your retirement.
Business owners with employees can opt for 401(k) as well. You can save on your employer payroll taxes through employee retirement plans. This is because the amount of employee wages that is subject to FUTA, also known as the Federal Unemployment Tax Act, is lowered.
5. Use your car for your business
Did you know that you can get significant tax advantages for your small business by using your personal car?
The standard mileage rate for the year 2023 was 65.5 cents per mile. Based on this, the IRS allows you to deduct your car’s operating and maintenance costs.
Also, you can opt for the actual expense method. In that case, you can add up all your vehicle-related costs, such as licenses, tires, maintenance, lease payments, and more.
Choose any one of these methods, looking at which one gives you more tax benefits.
Conclusion
No matter what your income is, saving on your taxes is crucial, especially for small businesses, as you generally don’t make much of a profit in the first year.
Following these tips will help you save a lot of your taxable income. If you ever face tax-related issues or receive an IRS notice, consider seeking help from IRS Notice and Owed Tax Specialists. They can provide expert guidance and assistance in resolving tax matters efficiently.
Do you want us to add more strategies to this list? Let us know in the comments!
