If you're new to owning a small business, you might not fully understand how your daily operations affect your tax liability. In order to avoid finding yourself with a shocking tax bill at the end of the year, it's in your best interest to optimize your deductions and tax credits. Working with a business tax professional is a great place to start, but it's equally important that you understand what your options are beforehand. That allows you to proactively address some of these things before the end of the tax season. Here's a look at what you need to know to make the most of what's available for your company's taxes.
There Are Lots Of Credits Available
Tax credits are subtracted from your actual tax liability, reducing the amount that you have to pay. Small businesses have a lot of options for tax credits depending on the industry and type of operation. In addition, there are credits available for things like investment in research, upgrades in your building for energy efficiency and also renewable energy investments.
If you offer health insurance to your employees or you're creating and contributing to retirement funds for them, there are tax credits you can claim for those as well. You'll have to fill out specific tax forms to prove your qualification, but most business tax professionals can help you with that. These are only a few of the credits that your company may be able to claim as part of your tax filing. Take time to go through your operation, including any investments you've made this year, and talk with your tax specialist about other possible options.
You Can Claim Many Revenue Deductions
Just like you can claim deductions from your personal income, businesses can also claim deductions from the sales revenue to reduce the taxable earnings. When you reduce the earnings that can be taxed, you reduce your tax liability.
As a business owner, you can claim deductions for the money spent in interest payments, employee salaries, benefits packages and some of the general costs of doing business. You can deduct administrative costs like supplies, maintenance costs for your equipment and other expenses.
Just keep in mind that you have to be able to support any deductions that you claim. That means having employee earnings statements, payroll benefits records, receipts for invoice and interest payments and documentation of what all of those payments were for.
You Can Customize Your Benefits Packages
As an employer, you are responsible for paying employer payroll taxes. The more money you spend in payroll, the greater those taxes will be. While you can claim the payroll itself as a deduction that reduces the taxable revenue, the payroll taxes can add up. This is particularly true when you issue bonuses on top of traditional salary. If you're looking to reduce your payroll taxes, you can opt out of bonus payments and offer tax-deductible benefits instead, such as gym memberships, sponsorship opportunities and other financial or membership-based incentives. This allows you to deduct the money spent from your taxable revenue without increasing the payroll taxes that you will have to pay.
You Can Use Depreciation To Your Advantage
Every business has some assets, and sometimes it's financially best to depreciate those assets over time. This allows you to recognize some of the expense of the item over its total usable lifespan instead of expending the whole thing all at once. However, under Section 179, you'll also have the option to claim the cost of the asset in the year that you purchase it instead. This could be a potential savings in a year when you might otherwise face a large tax liability. Your tax specialist can tell you if there are any assets available to be depreciated based on your purchase dates and the remaining value on the books.
With these tips, you don't have to be stuck with a large tax bill at the end of the year. A little bit of advanced planning and some understanding of your options may make it easier to maximize your company's finances and moderate your tax liability.
For more information and assistance with your taxes, consider working with business tax preparation companies in your area.Share