Running a small business can seem overwhelming because you are in charge of everything. Small business owners have to take care of marketing, payroll, product development, and then there are taxes. Even if you have a general knowledge of taxes and the tax system, there is no replacement for a tax expert. But what if you are not ready to hand it all over to a tax professional? These tax-saving tips can help you get it done right.
8 Steps to Help Small Business Save on Taxes
Take Advantage of Accountable Plans
Accountable plans let employees deduct specific business expenses. You log these types of expenses and then your employees deduct them later. It provides your workers with a nice perk. But it may also help lower your total tax costs. Here are the general rules for using the accountable plan:
- Expenses have to be used for a legitimate business purpose.
- The expenses had to occur within a reasonable time frame.
- Funds that are not used must be returned to the employer.
If you fail to meet these standards, the reimbursements become taxable.
Pay Attention to Adjusted Gross Income
Your adjusted gross income has a direct impact on your eligibility for credits and deductions. The specifics of how to calculate your AGI can differ depending on specific tax laws, but as you plan your tax season, it’s a good idea to be aware of it. For specific guidance, check with your third-party tax partner or accountant.
Track Your Receipts
If you want to maximize your deductions, you need to know how you spent your money over the year. It’s also useful for helping you understand your cash flow. Keeping track of your receipts and organizing them makes it easier for you to correctly log deductions. It also helps you fill out your paperwork accurately. If your small business gets audited, receipts provide proof of your expenses and validate that you reported costs properly.
Avoid Late Payment Penalties
When you get all your documentation together early it helps prevent last-minute or late filing which can lead to unplanned expenses. There are options available to help prevent late fees. A business tax debt loan or short-term working capital are two such examples.
Think About Restructuring
When establishing a small business, you chose the type of entity. Different entities have their own deductions and taxation policies. It also dictates the income tax form used to file taxes each year. It’s advisable to revisit your business structure every five years or so to see if reclassifying it would make sense based on your financial bottom line and business goals.
Look for Opportunities to Use Section 179
Small businesses have the option of deducting the full purchase price of certain assets that were financed over the tax year thanks to the Section 179 deduction. The deduction is helpful for small businesses that need new equipment. Deductions from gross income can help maximize these types of purchases and other similar investments because it lowers your overall tax-cost basis. However, just like any tax law, there are rules and limitations that apply. Talk to your accountant or tax provider for clarification.
Remember Benefit Plans for Your Employees
If you provide benefits for your employees, you may be able to take a tax deduction on your business tax return. There are some limitations and restrictions, but there are some opportunities to save on your taxes if you provide benefit plans for your employees.
PPP Loan Deductions
Many small business owners received a Paycheck Protection Program loan as part of the 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES). As long as the loans are used to pay business expenses (rent, utilities, and payroll), they were designed to be forgiven. In December of 2020, the IRS announced eligible expenses covered by the PPP loan are deductible on your taxes. You may be able to get loan forgiveness for Paycheck Protection Program loans from the Small Business Administration. The forgiveness