Small companies often pay around one-fifth of their income to the Internal Revenue Service. Burdensome federal taxes may lead to a high state tax as well. Fortunately, entrepreneurs can take several different steps to minimize the amount of money they owe to the government.
Records
If you run a business, be sure to keep detailed expense records and retain all relevant receipts. File receipts in separate folders that pertain to supplies, travel and similar categories. Staff members should understand effective recordkeeping techniques. This will help you claim deductions accurately and present the necessary papers if you face an audit.
Vehicles
When you use a car for commercial purposes, keep track of the maintenance, fuel and leasing or loan costs. Don’t assume that the regular mileage deduction will produce the greatest savings. It’s best to precisely compare both options. If you drive an expensive or heavy vehicle, you might save more money by deducting the actual costs.
Equipment
When your small firm turns a profit, consider buying additional equipment before the end of the year. For instance, you could upgrade a computer, purchase a bigger refrigerator for your restaurant or replace rusty shelving in a store. Keep thorough documentation of these purchases for tax and insurance purposes. You can subtract the costs from taxable income.
Home Office
Do you run a business inside your house or apartment? If so, try to dedicate an entire room to commercial activities and claim the home office deduction. This frequently results in substantial tax savings. You might save more cash by using the standard rate or subtracting your actual expenses, so you should carefully record all utility, rent, maintenance, and insurance costs.
Benefits
If you pay staff members higher wages, you’ll probably owe more money to the government. A better alternative is to spend the cash on benefits. You could provide medical, disability, dental or life insurance. Other options range from tuition reimbursement to free lunches. This solution will also minimize employees’ personal taxes and allow them to avoid high individual insurance rates.
Structure
Profitable sole proprietorships may gain tax benefits by becoming “S” corporations, limited liability companies or even nonprofits. Although it could complicate your tax paperwork, this change has the potential to reduce business as well as personal taxes. It might decrease the applicable amount of income when you pay the self-employment tax.
Experts
Think about consulting with an experienced tax preparer, especially if you’re very busy or have little knowledge of the tax code. This professional can help you make the most of
