The most important problem for small businesses after inflation and the quality of labor is taxes, according to research by Statista. Businesses, whether small or large, are required to file and pay taxes every year. While it is not the most exciting part of running a small business, it is necessary for maintaining a smooth operation.
Successfully managing taxes require meticulous organization, or they can become tedious. Additionally, they can prove expensive if you don’t account for every business expense or claim every deduction. In fact, a recent research study revealed approximately 93% of small businesses overpay their taxes. To ensure you don’t end up doing the same, here’s a list of tax-saving tips for small businesses:
1. Hire a Tax Preparer
Running a small business is hectic and stressful, even without adding the hassle of filing taxes. However, when you add tax filing to the management equation, it becomes an even more stressful job, especially if you have to do it yourself.
While you may have multiple duties as a small business owner, tax filing doesn’t have to be one of them. Hiring a professional to prepare and file taxes for your small business is a much better option, especially if you have a small business in a metropolitan city such as Sacramento.
The capital city of the state of California, US, is home to thousands of small and medium-sized businesses. As a small business owner in a metro city, your focus must be on delivering products and services to make money only. Having to deal with tax matters hinders your ability to perform other tasks. So, it is in your best interest to hire a Sacramento tax preparer specializing in your business niche to file your taxes promptly.
2. Keep Track of all Business Expense Receipts
As business expenses are deductible from taxes, small businesses must keep track of their expense receipts. The easiest way to do that is by keeping an organized record of every business expense. It not only allows you to file your taxes with ease but also enables you to maximize your deductions.
A pro tip is to make an excel sheet for all your business expenses or to utilize software that can save your expense receipts online. By using software for recording your business expenses, you can pull the records at any time as and when required.
3. Deduct Work From Home Expenses
During the covid-19 pandemic, many small businesses moved to work-from-home setups. Although it was to counter the consequences of the pandemic, the move also has tax deduction implications for small businesses. If you have an office setup at home, your small business might be entitled to tax deductions for some expenses. You can claim painting costs, operating costs, and a part of your utility bills as tax deductions. However, you must maintain a record of all the expenses to be entitled to these deductions.
4. Make a Charitable Donation
If you believe in a cause, donating to that cause might be the best option for you. It can not only help the ones in need but can also help your small business to reduce taxes. Donating to charities is an effective tax reduction strategy used by tax-savvy small businesses worldwide, and it can help you too. Charitable donations are exempt from taxes and included in tax deductions. You must keep track of all the donations and claim tax deductions against them when filing tax returns.
5. Save for your Retirement
Another effective strategy to save taxes is to maintain a retirement account. You must put as much money in your retirement account as possible. Payments made to your retirement accounts are entitled to tax deductions as well. It is a win-win situation for you, as you can plan your retirement while saving money on taxes.
The same applies to your employees’ retirement plans as well. Those payments are also tax deductible.
6. Reclaim Business’s Auto Expenses
You can also claim tax deductions on a business vehicle’s maintenance and operating costs. If you use the vehicle solely for business activities, you can deduct all the operating expenses, including fuel costs. If you have hired a driver for the car, you can also deduct their salary from your taxable income.
If you use your vehicle for personal and business activities, you need to calculate the expenses related to the business trips. The easiest way to do that is to track the mileage of your vehicle when you go on a business trip.
7. Review Section 179
Section 179 allows businesses to deduct the entire cost of their equipment at the time of purchase rather than depreciating it over its useful life. However, not all equipment is entitled to deductions. The IRS allows hand tools, copiers, office furniture, and appliances to be tax-deductible equipment. There is also a limit on the amount you can write off using the section 179 deductions. You can only write off $1 million worth of equipment in a year.
8. Hire Family Members to Work for you
Whether you are a sole proprietor or a partnership business, you can claim tax deductions on the salaries of family members. If you pay a handsome amount of money to your family members, you can save a lot in taxes. If you have kids of legal age, you can hire them to help you in the business. It will not only help reduce taxes, but you can also keep more money within the family.
9. Keep Track of Carryovers
No matter the reason, you may forget to claim some tax deductions this year. Fortunately, those tax deductions can be carried to the next fiscal year. You must keep track of such carryover deductions to claim in the future. Some carryover deductions include home office deductions, operating losses, capital losses, and donation deductions. You can save a good amount in taxes if you keep track of your carryovers.
As a small business owner, your work is cut out for you with multiple responsibilities, including marketing, inventory management, and tax filing. However, small business owners must be tax-savvy to save their hard-earned money. The key is identifying deductibles from your business expenses and then calculating your taxes. You can avoid overpaying taxes by following a few tax-savvy professional tips.