Small Business Tax Tips That Pay Off Big

Small Business Tax Tips That Pay Off Big

How much does your business pay for taxes? The small business company tax rate for 2020-2021 was 26%. A small business with one owner pays 13.3% tax.

Taxes are stressful for small businesses, particularly during current recessions. Overpaying taxes bottlenecks your small business’s cash flow. Every penny matters when you are running a small business.

You can reduce the tax burden with proper planning. You are probably wondering how do I do that? I don’t have the time and skills to do the calculations.

Read on for a list of small business tax tips that could come in handy for your firm.

How to File Taxes for Small Businesses

Many entrepreneurs don’t know how to file small business taxes. 36% of entrepreneurs in the US don’t pay taxes.

Working as a solopreneur means taking responsibility for the taxes you owe on your income. It’s easier said than done. It is okay if you don’t know how to file taxes for your small business.

Collect all your records on business earnings and expenses. If you are using a computer, keep track of all transactions during the year. Next is filling the right IRS tax form.

The IRS form you choose depends on how you operate your business. If your business is an S-corporation, you will file Form 1120s.

Schedule C is simpler to fill than Form 1120. Form 1120 requires the calculation of taxable business income.

Remember to keep the deadlines when submitting the forms.

Small Business Tax Tips

Tax tips for small businesses save you from overpaying taxes. Making the most of the available tax deductions can save you hundreds or thousands of dollars.

Employ a Family Member

Hiring a family member would significantly lower your tax rates. The Internal Revenue Service allows for various options to shelter income from taxes.

Family members like a spouse or children can shelter you from a significant tax burden.

Income paid to the child is taxed in a lower tax bracket than the parent. Insurance costs and other benefits play a significant role in tax reduction.

Hire the Right Accountant

An accountant offers to do more than prepare financial statements and taxes. A competent accountant goes the extra mile to track income and spending. The goal is to avoid cash flow problems and monitor gross and net profits.

If you don’t have the expertise and knowledge to file your taxes, you can use a professional. A competent accountant will help you avoid costly mistakes. The benefits your business stands to merit from a competent tax accountant are:

  • Saves you time
  • Reduces tax liability
  • Prevents hefty tax penalties
  • Help in bookkeeping
  • It will help you focus on other important business matters

Some of the opportunities for tax reduction may be unknown to you. However, a competent accountant will enlighten you about it all.

Save Money for Healthcare Needs

Medical costs in the United States continue to increase significantly. Saving for unexpected healthcare needs through a Health Savings Account would help tax saving.

Savings with HSA saves you since the contributions are pre-tax. The savings grow tax-free, and withdrawals for qualified medical expenses are tax-free.

Employer contributions by payroll deduction to HSA are excluded from employees’ taxable income. If you run your small business alone, the benefits are even higher. An individual’s direct contribution to HSA is 100% tax-deductible from an employee’s income.

Change Your Business Structure

How you classify your business determines how much taxes you pay. Choose whether to classify your business as a C Corporation, Limited Liability Partnership, or Single Member LLC. Each of the business structures is taxed differently.

Consult an attorney to determine how you should classify your business.

Remember, as an SME owner; you don’t have the privilege of the employer paying your taxes. You are liable for social security and Medicare taxes. If your business is registered as a limited liability company, you must pay the taxes.

Under different circumstances, you can eliminate some tax responsibilities. For some small businesses, it is wise to change the business structure.

Remember to separate business and personal expenses. Adding personal expenses to your business increases taxable income.

Deduct Appreciable Stock Contribution

How does your business make charitable contributions? Many businesses contribute to charity throughout the year and deduct the amount. You are better off donating appreciable stocks instead of money.

By donating appreciable stocks you can deduct the current worth of the stock.

If one share was $40 per share and the stock is now worth $80, you will deduct $80 during taxation. The option saves you $50 from a tax deduction.

Click https://www.taxfyle.com/freelance-cpa-jobs to learn more about tax savings.

Initiate a Retirement Plan

Small business owners have different retirement account options. Whether you are a solopreneur or have employees, this option would save you some dollars. By contributing or offering a retirement plan like 401(k) or IRA, you stand tax exemptions.

If you are a solopreneur, it’s commendable to open a solo 401(k). The contributions are tax-deductible up to a specific limit.

If your business has employees, a retirement plan will save you payroll taxes. A retirement plan lowers employees’ wages, which are subject to Federal Unemployment Tax Act (FUTA).

The retirement plans to consider are:

  • Simplified Employee Pension Plan
  • IRA or Roth IRA
  • 403 (b) plans

Enjoy Maximum Tax Deductions

Tax is a legal obligation for every business. The expenses can, however, be draining to your small business. Each entrepreneur can benefit from the above small business tax tips.

You don’t have to be a tax expert to enjoy tax deductions to the maximum. If you are uncertain how to compute your taxes and achieve tax savings, we got you.

Taxfyle connects individuals and small businesses with licensed CPA professionals to file your taxes. Take your business tax to the next level. We handle your taxes, so you have to stress about it.

We are committed to offering fair pricing to help you achieve your financial goals.

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