As a small business, you want your money to stretch as far as it can possibly go. Things are expensive and, on most days, you are working on dismal margins. On top of that, you have to do your best to be on top of market share. Any opportunity to save your coins is worth grabbing. One effective way to reduce the amount of money leaving your coffers is by identifying avenues for tax savings. Here are some ideas to consider:
Change the structure of your business
The structure of your business plays a part in the amount of taxes you cough out every quarter. Most small businesses prefer to run their ventures as sole proprietorships. However, in this structure, you, the business owner and the business are tied in tax and liability matters. Registering your business as an LLC or a partnership limits your liability and allows you to distribute your money in various channels. As a single-owner LLC, you will be operating like a sole proprietorship in taxes. Your business structure impacts the amount that will leave your business in taxes. Seek the advice of an attorney or accountant on the best one that meets your business needs and saves you on taxes.
Make the most of filing software
Tax filing software is handy for business owners who’d prefer to avoid the headaches associated with filing returns. Using tax filing software is not just a reserve for small businesses. Large ventures can benefit from such software too. The software will help you get on top of filing returns. The system contains accurate records, allowing for maximum-refund guarantees. You are more likely to get reimbursements for your fees and penalties when under the shield of reliable software.
Keep your receipts
You will be glad you kept your receipts when the time comes to benefit from deductions. Receipts are the financial dashboard indicating how much you used on taxes throughout the year. The receipts will have records of deductible goods and services, reducing taxable income. You may qualify for some deductions, depending on the nature of your business structure. The only way to know what you can get back is to keep a tab of all your receipts. Consider using an app to sort all your receipts in one place to avoid the hassle of doing it yourself. It will be easier to fish them out when you need corroborating proof of every deduction the tax department owes you.
Be on the lookout for carryovers
You may have deductions and credits that can be pushed to future years. These carryovers present an excellent tax savings opportunity. They include home office deductions, net operating losses and capital losses. It is easier to remember these deductions when you have proper records or reliable software that will notify you of them. You can also work with reputable duty drawback experts to help you identify tax recovery options. Many small businesses tend to overpay for duty for years without knowing it. A duty drawback expert will analyse your entries to identify refund opportunities from classification, origin, valuation rulings, and remissions.
Deduct your home office and car expenses
If operating your small business from home, you can legally deduct expenses related to the home office. You could deduct expenses like insurance, mortgage interest payment, utilities, repairs and internet service. These deductions will reduce the money that leaves your pocket for taxes. Similarly, you could save by deducting car expenses.
Figure out the percentage of time you use your car for work and apply it to the car expenses. For car expenses, you could either employ the IRS standard mileage rate or use the actual car expenses, such as gas, repairs and insurance. Your financial advisor should guide you on the best option to maximise your savings.
Work with family members, freelancers, and contractors
Granted, you may need to pay more per hour for contractors and freelancers. Ironically, you will be saving more eventually. That is because you do not have to incur expenses like office space, equipment and other employer-provided benefits. You also avoid paying Medicare and Social security taxes and workers’ compensation insurance. When you work with family members, you can get away from eliminating the income tax. You also will not have to worry about the Federal Unemployment Tax Act (FUTA).
Pay for retirement
Putting more money into your retirement account reduces your taxable income. And that is because the amount in your retirement account will not be taxed until you withdraw when you retire. The payoff letter from tax savings is too good to pass up. Consult your financial advisor to arrive at the best figure that will make sense for your cash flow.
Wrapping up
Running a business is expensive. Any chance to save money is always a lifesaver, especially for small business owners who have use for every last penny. One way to save money is knowing how to navigate the issue of taxes. Proper accounting and staying on top of deductions will get you many back in your pocket.
