There are two things certain in life: death and taxes. For business owners, taxes are a stressful thing.
Some business owners must forgo taking a salary as they must pay taxes. But the last thing you want to do as a business owner is to give more of your business income to the government.
The good news is that there are ways business owners can reduce their taxes. Tax savings strategies can reduce taxes. Read on to learn seven of the best ways you can pay less on taxes and grow your profit.
1. Hire a Family Member
Did you know it pays off to hire a family member? Yes, hiring a loved one is one way to reduce business taxes. This is a great option for small business owners.
The IRS outlines how this strategy works. There are different options business owners can use to reduce employment tax requirements.
This rule allows owners to pay a lower marginal rate. This rule also states there’s no need to pay tax on the income that’s paid to children.
2. Start a Retirement Plan
One of the drawbacks of being a small business owner is not having a 401(k) matched by an employer. There’s no need to worry about not having money for retirement. You can still start a retirement plan and reap tax benefits by setting up one.
You’ll need to choose a plan the IRS covers to take advantage of tax savings. This way you defer taxes on earnings until it’s time to withdraw the earnings.
A good option to go with is the 401(k) plan. Under this plan, one can fund up to $57,000 in total contributions. Other plans to consider include an IRA and 403(b) plans.
3. Take Advantages of Tax Credits
The government offers several tax credits businesses can use. Most of the tax credits call for businesses to do things. For example, there are tax credits businesses can take for hiring employees.
Are you planning to have your business go green? If so, you can use a tax credit to cover the cost of installing a solar energy system.
The federal government isn’t the only one that offers tax credits. Check with your state government. Most state governments provide tax credits to businesses that use local resources.
Don’t commit the mistake that most small businesses make. It’s common for businesses to fail to explore all tax credits available to them. It’s best to check with your tax planner to learn what tax credits your business qualifies for.
4. Save Money for Healthcare Needs
A great way to save on taxes is by saving for healthcare needs. It’s wise to start setting aside money for these needs early. You can do so by opening a Health Savings Account or HSA.
You can open an HSA if you have a high-deductible health plan. These plans can help a business reduce taxes.
How so, you ask? Savings come in three key ways. Contributions are pre-tax and they grow tax-free.
Withdrawals for medical expenses are tax-free. This is a great way to address future, unexpected healthcare needs.
5. Focus on Depreciation Deductions
Do you buy business equipment? If you do, you can take tax write-offs. This is possible if you buy machinery and vehicles for the business.
A business may be able to take these write-offs within the first year of owning and using the equipment. This is an accelerated depreciation method.
Section 179 deductions are a part of this method. These deductions apply to the costs of certain assets that a business has in service.
The other option available is bonus depreciation. Think of it as an extra benefit you can use to buy assets. It covers 100% of the cost for assets that a business places in service.
6. Deduct Travel Expenses
Do you have to travel for business purposes? If you travel a lot for business, you can likely reduce your business taxes. This is a deductible expense.
Be aware that this tax credit doesn’t cover personal travel. If you engage in business planning, there’s a way to maximize your business travel.
As a business owner, you can combine personal travel with business travel. You must be able to justify it. Make sure to have records to account for your travels if you plan to do this as the IRS might want to learn more.
7. Write Off Bad Debts To Reduce Income
Does your business work on the accrual accounting method? If this is the case, you have to review your customer accounts at the end of the year.
Pay close attention to these accounts when you’re completing this process. Look for customers who are less likely to pay you.
Consider these customers as bad debts. Yes, you can write off the amount as bad debt. All it takes is to deduct the amounts from your business income and you can save on your taxes.
You may be asking, “Are there bad debts that can reduce taxes?” It’s feasible to write off loans made to clients and vendors. It’s also doable to write off loans employees don’t repay.
Focus on Strategic Tax Planning To Reduce Taxes
Business owners can save on taxes by following this guide that gives them tips on how to reduce taxes. If you can use these seven tips, you’re likely to keep more profit which you can use to improve your business.
If you need help with tax planning, it’s best to turn to the pros. Contact us to learn more about the services we offer. Take advantage of our free consultation.