10 Tax Savings Tips for Small Businesses
As the year winds to a close, business owners are starting to fret about tax preparation. But tax season doesn’t have to be such a stressful time. Knowing where you can save money on your taxes can help lessen the burden from tax season.
Here are 10 tips for saving on your small business taxes this year.
1. Register as an LLC
Changing from a sole proprietorship to an LLC can provide tremendous small business tax savings. Self-employment taxes can be hefty for small businesses. Changing to an LLC can potentially eliminate some of the self-employment taxes while providing other tax benefits as well.
2. File an S Corporation Tax Election Form 2553
For LLCs, filing an S Corporation Tax Election Form 2553 could further reduce your self-employment taxes. Instead of paying self-employment tax on the total amount earned by your business, you could claim a salary for yourself on which you’d only pay the standard payroll tax. The rest of the revenue would be taxed as a distribution, potentially saving you thousands of dollars.
3. Claim Home Office Deductions
Business owners can deduct the costs of their home office if it’s used for business purposes only. That includes internet, routers, chairs, computers or anything else exclusively used for business.
4. Deduct the Cost of Equipment and Software
According to section 179 of the IRS code, businesses are allowed to deduct the entire cost of equipment and/or software purchased within the fiscal year up to $1 million. That doesn’t mean to go out and buy equipment just for the tax deductions, but if you’re going to buy something anyways, you can buy at a strategic time to boost tax savings in a particular year.
5. Take Advantage of IRC Section 199A
For self-employed business owners, Section 199A of the IRS code allows for a potential 20 percent tax deduction along with another 20 percent for real estate investment trust (REIT) for qualified businesses. To qualify for these savings, a business must be a pass-through where the owner and the business are a single financial entity.
6. Stay Organized Throughout the Year
While not monetary savings, planning and staying organized throughout the year is a great way to save time and headache during tax season. You might even have more time to search for more small business tax savings that you might have missed in a more frantic state.
7. Outsource Bookkeeping and Accounting
Want the easiest way to ensure the maximum tax savings for your small business? Outsource your accounting and bookkeeping. A professional accounting team will have the time and expertise to devote to finding every possible tax deduction for your business without you having to lift a finger.
8. Hire Contractors Instead of Full-Time Employees
By hiring contractors when you need them, you can cut down on payroll costs. Plus, contractors don’t require you to withhold Social Security or Medicare taxes or enroll them in company retirement, insurance or healthcare plans.
9. File on Time
The quickest way to ruin your small business tax savings is to accrue penalties on the back end for filing late. Penalties for late filing vary depending on your business type. Make sure to avoid these penalties by filing your taxes on time.
10. E-file Tax Returns
To help ensure that your taxes are filed on time, file your returns electronically. That way, they can be delivered without any chance of getting lost or delayed in the mail. It can also help to find extra deductions and get you a quicker refund. E-filing is especially helpful for those who like to wait until the last minute.
No matter how you file, it’s always best to consult with a tax professional to ensure maximum savings. Even hiring a temporary tax preparer can help guide you through some of the tricky aspects of tax preparation and provide helpful tax saving tips.
See how SmartBooks helped one business save $280K through proactive tax planning in our case study below.