As a small business owner, you understand the challenges that come with running your venture. Dealing with the taxation maze can even make the process more complicated. Yet, the process is unavoidable if you do not want to be in the bad books of the government.
“It is pertinent to establish that understanding tax credits and deductions goes beyond compliance for small business owners. It helps them to enhance the financial health of their business. When you plan your taxes effectively, you can significantly reduce your tax bills,” says tax law attorney Michael March of Whiteford Tax Defense.
It will help you free up more capital to reinvest in your business. You can also use it to cushion your bottom line. Ultimately, when you act proactively concerning taxation, you help your business to grow.
This article discusses how small businesses can take advantage of tax deductions and credits:
Table of Contents
Why You Need Professional Support
If you want to maximize tax deductions and credits, you must have a feasible plan. Your plan must be solid and active. That is why you must engage a results-driven tax law attorney, someone who understands the law and can interpret it to your advantage.
This professional will analyze the peculiarities of your business and devise tailor-made strategies to save on taxes. They will advise you on the need to comply and take advantage of available benefits. The ultimate aim of a professional advocate is to help your business thrive in a highly competitive economy through tax deductions and credits.
Available Tax Deductions and Credits for Your Business
Before you can take advantage of tax benefits, you must first understand the deductions and credits available to your firm. Unfortunately, there are some hidden gems that many small business owners often overlook. These aspects include:
Home Office Deduction
You may qualify for a home office deduction if you use a part of your apartment exclusively for business. It is an innovative approach that the government compensates for. For instance, the deduction may be a percentage of your mortgage interest, rent, insurance, and utilities.
Equipment and Supplies
You can also enjoy tax deductions on specific purchases. These include furniture, software, office supplies, and computers. However, many fail to keep track of these expenses. When you do not demand tax deductions on the areas you are eligible for, you should not expect the authorities to grant you such on a silver platter.
Vehicle Expenses
You can also enjoy gas, insurance, and repairs deductions on your vehicle if you use it for business. Since the vehicle serves business purposes, you should enjoy the tax deductions. You can determine these deductions through your actual car expenses or the standard mileage rate.
Health Insurance Premiums
You can also deduct your premiums if you are self-employed and have your own health insurance. It is like your business is funding the premium, and you deserve the accrued deductions from this aspect.
Retirement Contributions
You can enjoy an appreciable deduction if you contribute to a retirement plan such as a Solo 401(K) or SEP IRA. You can secure your financial future through this contribution as it reduces your taxable income. It provides a two-way benefit for you as you enjoy tax deductions and also take care of your retirement.
Educational Expenses
You can also enjoy significant tax deductions if you invest in the education or training of yourself or workers. The government encourages training, especially one that will enhance excellent service delivery. So when you invest in a business-related education or training, it can qualify you for tax deductions.
As we draw the curtain on this, it is essential to remember that you must meticulously keep all receipts and records relating to your business to qualify for these deductions. It’s necessary to present these records during the tax season for the authorities to consider your request for a deduction.
How to Strategically Plan Your Tax
For the umpteenth time, you must carefully plan your taxes if you want to enjoy deductions and credits. Things run seamlessly when you plan and execute well. You can strategically plan your taxes through:
Quarterly Tax Payment
You can avoid underpayment when you promptly calculate your taxes and pay them quarterly. This method also helps you to manage cash flow effectively. You can seamlessly distribute the tax burden across the year.
It becomes more manageable for you as a small business owner to offset your tax bills quarterly. You can also use this opportunity to periodically review your earnings and make adequate adjustments for the business to keep running.
Select the Appropriate Accounting Method
The accounting method you choose (between accrual and cash) determines how you report your income and expenditures. Your specific business context will determine which method you choose.
For instance, the cash method identifies revenue and expenses when you receive it or pay out. It is straightforward and perfect for smaller businesses.
On the other hand, the accrual method offers a more accurate picture of your business’s financial health over a given period. Businesses with more complex operations usually prefer this method.
Choose a Suitable Business Structure
You must be conscious of the business structure you choose because it affects your tax liabilities. The typical business structures include sole proprietorship, corporation, and partnership. It is beneficial to consult with a tax attorney or professional before selecting a business structure.
You need to understand the tax implications of the structure you prefer. The professional will enlighten you on the tax implications, records-keeping pre-requisites, and liabilities associated with your preferred structure. If you opt for a sole proprietorship, you get easier tax reporting, but also take on personal liability for business debts.
An ideal structure should create a balance between operational efficiency and tax benefits. It must also guarantee legal protection. Following professional insights and guidance in setting up your business can significantly enhance efficiency and other benefits.
Final Remarks
Many small business owners fidget at small business taxes because of the associated complexities. However, you can walk through this slippery path unscathed if you adopt the right approach and resources. You can take advantage of tax deductions and credits to enhance the financial health of your business.
Before starting a business, it is advisable to partner with a local tax law attorney. They will help you comply with legal requirements, make decisive financial decisions, and stay ahead of the curve in a highly competitive business world.
