The Internal Revenue Code is set up to provide numerous tax breaks to individuals and businesses alike. Even the IRS acknowledges that you must keep some money to live on and with which to run your enterprise.
Some small business tax savings strategies, like timing income and expenses, must be accomplished before the end of the tax year. But others, such as funding a retirement plan, can be done at any time before you file your tax return.
In a survey personal finance expert, Garrett Gunderson conducted of his small business-owner clients and wrote about for Forbes, approximately 93 percent of them had overpaid over the past dozen years. Now, nobody expects owners to be tax professionals — you do have businesses to run, after all — but it’s important to know where you can save money in order to invest that money back into your business.
Invest More in Marketing
If you are still using the old ways of marketing, then it’s high time that you implement digital marketing as it helps you reach out to more potential customers and thereby increasing the probability of finding new customers. This will also benefit you from the tax point of view as marketing expenses are eligible for tax deductions. Therefore, it is not a bad idea to increase the budget for marketing.
Business Utilities
Business owners using their vehicles and phones can show such expenses are utility expenses. For instance, expenses on phones, vehicles, parking charges, driver’s salary, and so on are claimable if made purely for business purposes. If you are operating your home, then electricity expenses are also claimable. This will help in reducing the tax burden.
Save Money for Healthcare Needs
One of the best ways to reduce small business taxes is by putting aside money for healthcare needs. Medical costs continue to increase, and while you may be healthy now, saving money for unexpected or future healthcare needs is essential. You can accomplish this through a Health Savings Account (HSA) if you have an eligible high-deductible health plan.
Deduct Travel Expenses
If you travel a lot, you may be able to reduce your business taxes. Business travel is fully deductible, though personal travel does not enjoy the same benefit. However, to maximize your business travel, small business owners can combine personal travel with a justifiable business purpose. Any frequent flier miles earned from business travel can also be redeemed for personal travel later on.
The Bottom Line
With wise planning, you can reduce your taxable income as a small business owner and keep more of your money working for you. Just remember to consult a tax professional to make sure you qualify for the potential savings discussed here.
Time Your Business Income and Expenses
Timing your income involves moving it from one year to another. You first have to determine the year in which you expect to pay the most in taxes.
Review your current expenses before the end of each year and prepay some of those amounts if you want to reduce your income for the current year. You can also increase your expenses and decrease income by making expenditures such as stocking up on supplies.
Write Off Bad Debts to Reduce Income
The end of the year is also the time to review your customer accounts if your business operates on the accrual accounting method. First, find those customers who aren’t likely to pay you. You can write off the amounts they owe as “bad debts” and deduct these amounts from your business income to save on taxes.
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