If you own a small business, handling taxes can be overwhelming, especially when you see so much of your hard-earned money seemingly disappearing. However, there are a number of ways to help your business make the most of deductions, credits, and business structure while remaining in compliance with the IRS. Here are a few tips in order to plan for a stress-free tax season.
1. Business Structure
Depending on how your small business is set up, its structure can allow you to benefit from different tax breaks.
- Single-Member LLC: Having the sole proprietorship LLC, or limited liability company, means that the business is solely being run by an individual. This ensures that you are not held responsible for anything that is not owner-specific liabilities. Though you are subject to self-employment taxes, this can help with taxes.
- Multi-Member LLC: Functioning similar to the single-member LLC, when your business is being held by more than one member, all parties are able to report the income as personal, rather than paying taxes at company-level.
- S-Corporation: S-Corp reduces self-employment taxes, which helps owners to take a salary and other profits as distributions, ensuring a lower tax rate.
- C-Corporation: Since there are significantly more owners and shareholders in a C-Corp business, this can be beneficial for businesses that are planning to reinvest profits. Though they may be double-taxed, the corporate tax rates might be lower.
It’s a good idea to look into the specifics for the type of structure that your business holds and talk with a professional to know what is best for your business.
2. Tax Deductions
There are a number of business write-offs that you can deduct, which can help minimize your total taxed income. Knowing some of your options can help you take advantage of them.
- Home Office: If you work from home, you can actually dedicate a percentage of your rent/mortgage and utilities to being a business write-off. In the instance that you have a room that is specifically used for a home office, you can use the percentage of what it’s costing you monthly as business expenses.
- Marketing and Supplies: Anything that you’re using to further your small business, from ad marketing and web development, to computers and office equipment, can be tax-deductible. Keep track of the amount that you’re spending on all the expenses to have on-hand during tax season.
- Vehicle Expenses: If you use your personal vehicle for your business, any costs that go toward the car’s gas, mileage, and maintenance can be deductible.
- Employees and Training: For all of the costs going toward your employees – such as training, conferences, education, certifications, wages, or health insurance – are all business write-offs.
As you continue to make purchases for investment in your business, know that business-related expenses lead to deductions and therefore tax breaks.
3. Tax Credits
On top of tax deductibles, you should look into what tax credits you qualify for. You may want to consider investing in some of the following to help your small business during future tax seasons.
- Energy Efficiency: Using environmentally friendly resources for your business, such as solar panels or EVs, may make you eligible for energy-efficient tax credits.
- R&D Credits: If your business is working toward specific development or innovations in products or services, this could help you benefit from the innovation-focused tax credits known as R&D, or research and development. A few notable examples of industry development are aerospace, winery, agricultural, automotive, and software development.
- Health Care: If your small business is providing health insurance to your employees, you may be able to get 50% off premium costs during tax season.
- Work Opportunity Tax Credit: The WOTC can qualify you for a tax credit if you have hired ex-felons, veterans, or individuals from disadvantaged backgrounds.
Aiming for tax credits is a smart investment for your business and can help with your future tax seasons.
Next Steps
CFOs, or chief financial officers, are there to help you identify how your business can benefit during tax season. They have financial expertise that is personalized in order to fit your business’ needs and help it thrive. Golub, Senitt, Rosenberg & Co. has a team of experienced fractional CFOs that are there to give you the best support during this tax season. Reach out today to get help for your small business.
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