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Money matters a lot for small businesses and even the smallest savings can make a big difference. And if you are a small business owner, you will probably know the significance of saving up on taxes. However, this is easier said than done because taxes are complex. Additionally, there is always stress that you may calculate the deductions wrong and face the wrath of the IRS. You may even end up overpaying your taxes, which exerts a considerable financial burden on your small business. There are some smart hacks that can help you save money on taxes so that you may reinvest it in your business to unlock new growth opportunities. Here are the ones you should keep in mind.
Keep track of business receipts
First things first, you should keep track of all the receipts for any business expenses you make as a part of the operations. This can be more complex than you think because small businesses pay at many places for goods and services. Still, you should not miss them because some of them can be deducted from your taxes and offset the taxable income. Maintain a complete record of all the payments and keep multiple copies of their receipts so that you are not in a fix at the end of the year.
Deduct home office expenses
It is common for small business owners to operate from home offices. The good news is that you can deduct home office expenses to reduce your tax burden. These expenses include mortgage interest payments, utilities such as telephone, electricity and internet service, repairs and insurance. While claiming deductions for these expenses, you have to calculate it on the basis of the portion of your living space that you use dedicatedly for running your business.
Deduct car expenses as well
While home office deduction is one smart way to reduce your small business tax burden, you can also deduct your car expenses. While doing so, you need to calculate the percentage of time you use the car for your business purposes. Further, you can determine the actual amount in two ways, firstly, by using the IRS’s standard mileage rate and secondly, with the actual car expenses (including gas, repairs, and insurance).
Plan your taxes properly
Tax planning makes sense for everyone, all the more for small business owners who want to avoid IRS issues and focus only on growth. Staying on track with your books is important and so is being aware of the tax deadlines. Never miss a deadline because it can land you in trouble. The best approach is to collaborate with tax attorneys who offer tax planning to keep your business on track. Besides playing an advisory role, they can bail you out of problems with the IRS if they, unfortunately, crop up.
Pay attention to carryovers
Another smart tax-saving idea for small business owners is to pay attention to carryovers. Essentially, these are tax credits or deductions which are not used up fully in one financial year and can be carried over to the subsequent financial year. Such carryovers include items such as net operating losses, capital losses, and deductions for charitable deductions. Bear them in mind when you file your taxes and you may end up saving a considerable amount on taxes.
Take the advantage of Section 179
IRS Section 179 empowers small business owners with a distinct advantage. It lets them treat the equipment as a business expense in its year of purchase so that they can avoid tracking depreciation. Business equipment, in this case, includes anything that a small business owner may require to run a business, from office furniture to machinery, computer items, HVAC systems, and even security alarms. This is another tax-saving opportunity that you shouldn’t miss!
Hire independent contractors
Hiring independent contractors rather than permanent employees is another smart move that can help you cut down your small businesses’ tax burden. When you hire a permanent workforce, you need to provide them a minimum wage or salary and abide by laws related to payroll taxes, workers’ compensation, social security and more. These complications are eliminated with independent contractors and you can save up on taxes as well.
Using these smart ideas enables you to save on taxes for your small business and avoid overpaying as well. While brushing up your tax basics definitely helps, you cannot ignore the value of professional advice in this context. Partnering with a tax attorney keeps your tax status up-to-date and saves you from stress as well.