13 Essential Tax Saving Tips for Small Business Owners
Here are some of the most important tax-saving tips for small business owners:
1. Keep organized: Ensure you deduct every dollar you spend on business expenses by staying organized and not relying on a box full of receipts. Have a separate bank account only for business activity.
2. Hire a CPA or an Enrolled Agent: A tax professional will likely pay for themselves with tax savings and help you navigate the complexities of business taxes.
3. Make Estimated Tax Payments: Small business owners are required to make estimated tax payments on their business income. S corporation (S-corp) owners must estimate the amount of income tax on their business income and submit the payments in four quarterly installments. Sole proprietors and partners must estimate the amount of both self-employment tax and income tax on their business income.
4. Claim all eligible deductions: Deducting every eligible business expense is crucial for minimizing your tax liability. Some common deductions include home office expenses, mileage, and travel expenses.
5. Research small business tax credits: Tax credits offer dollar-for-dollar reductions in your tax liability and can be an effective way to lower your small business tax bill.
6. Take the qualified business income (QBI) deduction: The QBI deduction allows eligible small business owners to deduct up to 20% of their qualified business income.
7. Account for Business Losses: The NOL deduction rules were loosened due to the COVID-19 pandemic. In 2020, you may carry back a loss, allowing for an immediate tax refund for a portion of taxes paid in the last five years.
8. Set up a retirement account: Small business owners can take advantage of retirement accounts, such as a 401(k) or a Simplified Employee Pension (SEP) IRA, to save for the future while also reducing their taxable income.
9. Utilize Startup Deductions: One innovative and effective way for a small business to lessen its tax burden is to put aside money for future healthcare needs. As medical care gets more expensive, saving money for future medical needs is the wise decision to make – even if you’re healthy today. The best way to do this is to create a Health Savings Plan for.
10. Employ a Family Member: Hiring a family member can provide tax benefits for your small business, as the income they earn can be sheltered from taxes.
11. Save Money for Healthcare Needs: Put aside money for future healthcare needs by creating a Health Savings Account (HSA) if you have an eligible high-deductible health plan.
12. Consider changing your business structure: Small businesses generally fare best as pass-through entities, where you and your business are considered one taxpayer. In most pass-through types, all business income is subject to self-employment taxes, which will eat up 15.3% of your earnings. Your business income is taxed at your individual tax rate. If your business is taxed as a limited liability company (LLC), you still have to pay those taxes, though in certain circumstances you may be able to eliminate the employer-half of those two tax responsibilities. This might be a wise switch for some small businesses.
13. Track Your Travel Expenses: If you travel for business purposes, be sure to track your expenses, including mileage, meals, and lodging. These expenses can be deducted from your taxable income.
Are you a small business owner looking to save on your taxes and maximize your deductions? Simplex is here to help. We specialize in working with small businesses and can provide personalized advice and strategies to minimize your tax liability. From organizing your expenses to taking advantage of tax credits and deductions, we'll ensure that you're making the most of your business's financial situation. Don't let tax season stress you out - let us handle the numbers while you focus on growing your business. Contact us today for a free consultation.