There is no doubt that business tax liabilities are complex, and most business owners probably aren’t taking advantage of the tax deductions. After all, reducing your tax liabilities leads to money savings while decreasing the bottom-line total used to determine your business’s tax bill.
That said, filing taxes is already a complex process and requires a good head, and companies who want to save money on taxes make the process more complicated than ever.
While you will have to wear multiple hats as a business owner, the last thing you would want is to unnecessarily pay more money on the hard-earned income than you have to.
In the end, every business is required to report its income and file taxes accordingly. Such tax is usually referred to as income tax. On the other hand, you will be liable for property tax if you operate a business from a brick-and-mortar storefront.
Furthermore, your company will have to file employment tax if you’ve hired employees to look after business operations. Whatever the case may be, every business owner aims to pay as little tax as possible while remaining compliant with tax laws and policies.
With that in mind, let us look at a few easy-to-follow tax reduction strategies that business owners can utilize to save a pretty penny.
1. Hire a qualified tax advisor, accountant, or attorney.
It is a wise decision to consult with a reputable, qualified tax attorney, accountant, or advisor before deciding upon anything that will affect your company’s tax returns.
That said, ensure that you conduct research and shortlist a couple of options instead of putting pen to paper with the first tax professional you find online.
Furthermore, don’t forget to check your shortlisted candidates’ credentials. Typically, experienced tax professionals hold an advanced law degree like an LLM.in taxation or a related degree. In the end, hiring a tax professional and asking them to handle the bulk of your tax management duties will be better for your business.
In fact, these professionals are experts at finding ways to limit the amount of money you have to pay business taxes. So, consider hiring one for your business today!
2. Hire family members as employees.
One effective way to limit the amount of money your business has to pay on employment taxes is to get family members on board to run your business’s operations. For instance, if you hire your spouse to perform business-related tasks such as bookkeeping or accounting, you won’t have to file or pay unemployment (FUTA) taxes.
What’s more, you’ll be exempted from employment (FICA) taxes if you hire your children as employees. Furthermore, you’ll altogether avoid social security and Medicare taxes on the money you give to your children.
Contribute to a retirement plan.
If your business is bringing in the big bucks, you can save this money by investing in a qualified retirement plan that will differ tax on the money your earn on your contributions (of course, you will have to pay tax once you start earning from the retirement plan).
What’s more, you can also offer such retirement plans to your employees to gain their loyalty and trust. Some retirement plans include;
- 403(b)- this type of retirement plan is for public school and non-profit employees. Employers can match their workforce’s contributions and increase tax benefits if employed for fifteen years with this retirement plan.
- Simplified Employee Pension Plan (SEP)– this type of retirement plan usually has a higher contribution limit and is typically available to self-employed individuals. You will take advantage of tax credit and a simplified retirement account with tax-free contributions when initiating this plan.
- Roth IRA– this type of retirement account is aimed towards individuals looking for tax-free qualified withdrawals. Furthermore, individuals who earn less than $140,000 a year should consider putting their money in this account.
In comparison, you’ll be taxed as long as the money stays in the retirement account. But, you’ll receive it tax-free when you withdraw it.
- SIMPLE IRA– you can require a 2% contribution from your employee’s salary to fund this retirement plan. Moreover, your employer can contribute as much as $13,500 annually. Plus additional $3,000 for individuals over 50 years of age.
3. Consider focusing on healthcare.
If you’ve acquired a high deductible healthcare plan, chances are you may be able to take advantage of HSAs (health savings accounts), allowing you to save some money that can be used later on for healthcare purposes.
Furthermore, withdrawals and contributions will be tax-free with this tax-saving method, making it an appealing option for small business owners everywhere.
That said, consider contributing to your workforce healthcare as you’ll be better off doing so. While employee raises will be subject to FUTA and FICA taxes, provide them with health insurance coverage instead of giving them a raise all the time.
In addition, doing so will prevent you from paying any employment or unemployment taxes, or both!
4. Consider Charitable Contributions.
Donating to a charity of your choice is a surefire way of establishing trust with your customers. So, consider choosing effective and meaningful charities and then monitor your charitable donations now and then.
In the end, you’ll be able to deduct around twenty percent of your taxable income through this method. Therefore, every business considers giving to charity these days as it is an excellent way to minimize your tax liabilities and simultaneously provide help and support to the poor.
5. Always remain up to date with the latest taxation laws.
Tax laws and policies are constantly changing every day. So, how you filled and paid your taxes last year might not be as effective this year. That said, consider staying up to date with the latest tax laws and policy changes to ensure that you remain compliant and avoid the IRS audit in the foreseeable future.
So, get in touch with your tax attorney, accountant, or tax advisor to learn more about updated policies in the taxation world.
It is never too late to reduce your business tax liabilities with the help of a few intelligent donations and purchase decisions. However, the way you manage your business expenses will ultimately decide the type and amount of taxes your business will incur.
Whatever the case may be, consider the easy-to-follow tax reductions strategies mentioned in this article, and you’ll be well on your way to tons of money savings on your tax payments.