Most small business owners typically experience difficulties with filing their taxes. To avoid this problem, it’s essential to take the proactive approach of organizing finances. While the tax season is coming to its end, now is the best time to finish filling your taxes and save money on it simultaneously.
Keep on reading to discover the seven tips on how to save on your business taxes.
1. Use tax software
As a small business owner, you should consider using tax software for several reasons. First, it helps keep the track of deductions that may otherwise be neglected. Besides, it automatically backs up all your fillings. And most importantly, tax software helps to keep your fillings perfectly accurate. According to the IRS, less than 1 percent of online tax returns have mistakes, where about 21 percent of paper returns do.
If using tax software is too much work for you, consider hiring the best tax accountant. However, even with the highly reputable and experienced CPA, if you avoid keeping proper track of your expenses, you’ll end up paying more in taxes. All those minor neglected deductions can add up.
2. Keep a tab on deductible expenses
Expense receipts can easily get lost and expense monitoring neglected. Consider downloading an app for your phone that lets you take photos of your receipts. To keep all of your costs in one place, consider rolling in all expenses from your online bank account and credit card into the app.
3. Pay your retirement accounts now
As a self-employed individual, you can decrease your taxable income by contributing that income to your retirement plan. This income will stay untaxed until you retire. Hence, you’ll get significant benefits of reducing your taxes now and ensuring a secure retirement in the future. An average business owner can contribute up to $5500 to a Roth IRA or a traditional IRA if he or she is younger than 50 and $6500 if older than 50.
4. Deduct home office and business equipment
If you’re using a part of your house for business tasks, you can deduct mortgage interest payments, repairs, insurance, and utilities. Booth homeowners and renters can do that. Use tax software to determine what portion of your house is used for running your business. Your tax software will calculate the deductible percentage.
5. Keep track of carryovers
Some tax credits and deductions cannot be fully used in a single year. However, they can be carried over into future years. These typically include net operating losses, home office deductions, charitable deductions, and capital loses. Remember to keep an eye out for these from one year to the next.
6. Alter your business structure
Being a small business owner makes you unable to pay only a small portion of your taxes as many employers usually do. You’re responsible for the entire amount of Medicare and Social Security taxes. If your business has a Limited Liability Company structure, you’re still obliged to pay these taxes. However, there are ways to eliminate the employer-half of those two tax responsibilities. This switch has many points to consider, including paying yourself a reasonable amount and other associated risks. But it can be a highly effective way to decrease your taxable responsibility.
7. Deduct travel expenses
You can decrease your business taxes if you travel a lot. While traveling for personal needs is not deductible, business travel is fully deductible. To increase your business travel, try combining it with a justifiable business need. All frequent flyer miles accumulated from business travel can be used for personal travel afterward.