Entrepreneurs and business owners are liable to pay income tax on the revenues generated by their venture. This can be a considerable sum, and they are always in search of deductions and exemptions to minimize their tax outgo. Income tax is one of the most challenging things to understand.
Taxes can be stressful for a small business owner. You likely wear many hats, and the last thing you want to do is give more of your hard-earned business income to the government.
Thankfully, there are many tax savings strategies to reduce your taxable liability as a business owner,
consider some of the following methods below.
1. Hire Family Members and Relatives
Hiring family members can prove to be a significant step to reduce taxes. They can be paid salaries like the way other employees are paid. If the family members who get hired by the company have no other income, then the company can pay them just Rs 2,50,000 a year.
This will ensure that they don’t become liable to pay taxes. Since the salaries paid to the employees is a cost to the company, it can be set off against the company’s taxable income, thereby reducing the overall tax outgo of the company.
2. 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.
3. 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
4. Deduct the Cost of Gifts
You can deduct up to $25 per person from the cost of gifts given to customers and vendors. An exception exists for those that bear your business name, are distributed as a matter of course, and cost less than $4.6
Deducting the costs of entertainment is a bit trickier if you show your appreciation by paying for a good time. These costs are no longer deductible unless the event is directly related to your business in some way.
5. Deduct your car expenses.
The trick here, again, when you’re deducting expenses, is to calculate what percentage of the time your car is being used for work. From there, you can apply that percentage to your overall car expenses.
For this category of deduction, two types are available: the IRS’s standard mileage rate or your actual car expenses (including insurance, gas, and repairs). Figure out which one makes the most financial sense before filing so you can maximize your savings.
6. Keep an eye out for carryovers.
Some deductions or credits may not be fully used in one tax year and are eligible to be carried over into future years. These can include items like capital losses, net operating losses, home office deductions, and charitable contribution deductions.
Track these (or have your software do it), so you don’t forget them from one year to the next.
7. Don’t sell your old equipment.
If you want to get rid of a property that’s no longer providing ROI to the business, find out whether it would be better to abandon it (an ordinary loss) or to sell it (a capital loss).
An ordinary loss is fully deductible, so find out how your property may be classified under Section 1231 to determine how you should rid yourself of it.
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