Tax time – it affects more than just individuals. It affects business owners, as well. While corporate taxes don’t necessarily hurt big companies, smaller firms can find that their tax debt is a serious financial burden. Thankfully, there are quite a few ways that you can save on your small business taxes each year. You can put that money back into your company to foster growth, stability and profitability. What steps should you take to ensure savings on your company’s income taxes?
Invest in a Retirement Plan
Like taxpayers, business owners can reduce their tax liability by investing in retirement plans. Of course, it’s a bit different here than just adding more to your personal IRA. You’ll need to set up and then fund a retirement plan for yourself, as well as for your employees. You’ll need to choose a plan that’s approved by the IRS, as well. If it’s not approved by the IRS, it won’t reduce your tax liability.
File as an S-Corp
Do you run an LLC? Do you operate a C Corp but want to benefit from the unique advantages available only to S Corps? If so, you can change the way that the IRS treats your company by filing an S-election. You’ll need to do it no later than the beginning of the year, and you’ll also need to make sure that this is the right option for you. It’s generally a very smart choice for any LLCs out there, because the IRS doesn’t recognize the limited liability company as a taxable entity, and therefore treats your business as either a sole proprietorship or a partnership, both of which have complication that might increase your tax debt.
Use Tax Credits to Your Advantage
Tax credits give consumers invaluable way to reduce their tax debt, but they can do the same thing for your business. Didn’t realize you qualified for tax credits as a business owner? Many people don’t. While there are quite a few credits out there, some of the most pertinent and important include the following:
- Purchase Based – Have you purchased equipment, vehicles or facilities in the current tax year? If so, and those purchases have been put into service, you may qualify for a tax credit based on the type of purchase and the amount you spent.
- R&D Tax Credit – Is your firm engaged in any type of research and development? If so, the cost of that R&D could give you access to an important tax credit. Even nontraditional R&D can qualify, such as product development, product improvement, business performance improvement and the costs of working with outside providers who perform research and/or development.
- Going Green – Has your business invested in green technology to reduce its impact on the environment, or its reliance on the energy grid? You could be eligible for a credit on your business taxes here, as well. The business energy tax investment credit helps offset the cost of investing in solar energy, wind generation, fuel cells and more.
- Improving Access for the Disabled – Ensuring that your business meets the ADA requirements set forth by the government is not cheap. Thankfully, you can deduct some or even all the cost of your modifications to make your business more accessible to the disabled.
Deduct Your Taxes
It might sound strange to recommend deducting taxes in order to save on your taxes, but it’s a proven strategy. Most of the things you buy for your business have taxes built into the price – gas, office supplies and the like. You also have state business income tax, and may have local taxes to pay, as well. You can deduct all of those from your federal business income taxes to help reduce your overall costs.
Deduct Business Asset Depreciation
When you purchase business assets, you generally pay full price for them. That value is then reduced over time, through use. This is called depreciation. The IRS allows you to deduct the full amount invested in business assets within the year you purchase those assets, rather than breaking those deductions down over time. This is called Section 179, and it can give your business access to tens of thousands of dollars in reduced taxes depending on your situation. However, some tax strategies disallow the use of business asset depreciation, so work with a professional tax preparer to determine whether this is the best option for your particular needs or not.
Pay Attention to Carryovers
Some of the deductions available to you as a business owner are only available in part during the initial year. However, you can carry them over to the next year and then use them in full. Make sure you pay attention to these, and use them strategically. For instance, if you have a qualifying carry over that could give you partial value now, but know you’ll be experiencing significant growth next year, you could carry it over to offset your increased tax liability. Some examples of potential carry overs include net operating losses, your home office deduction, charitable contributions, capital losses, and general business credits to name only a few.
Finding the Help You Need
As you can see from the above, there are many ways that you can save on your small business taxes. However, most of these methods require a great deal of knowledge and expertise. Mistakes with company taxes could mean owning more to the IRS in a best-case scenario, or being audited in a worst-case scenario. Work with a professional tax preparer to develop a tax strategy that fits your business’ specific goals and needs, and to ensure that you’re filing your taxes accurately and on time. Note that the right company will also offer other services, including professional bookkeeping to keep your business on the straight and narrow all year long.