When you spend all year working your tail off to run your small business, there’s nothing quite as demoralizing as watching your hard-earned money walk away with the IRS. That’s why it’s important to implement tax-saving strategies that help you hold onto every possible penny.
Use the following five tax strategies to minimize your tax expense and maximize this year’s profit.
Strategy #1: Select The Right Business Entity
Choosing the most suitable business entity is your first and most important step toward proper small business tax planning. This decision impacts almost all of your other tax-related decisions. The most common entities include sole proprietorships, general partnerships, limited partnerships and limited liability companies (LLC).
Strategy #2: Keep Good Accounting Records
Sound records are critical to tax-saving strategies. Your income statement and balance sheet are the two fundamental accounting records. The former shows your business’ profit or loss for your income tax return. The latter lays out the assets you own and debts you owe. Many small business owners aren’t able to take advantage of tax deductions they might be entitled to. Why? Well, how do you deduct expenses you haven’t kept records of?
Strategy #3: Deduct Assets Properly
Assets that you purchase for your business – equipment, for example – can be written off against your income and, thus, slash your income tax burden. There are many different ways to write off business assets you own, so this is a task best left to your accounting or tax advisor.
Some assets can be deducted in full in the year you purchased them, while others are deducted over the course of many years. The different strategies make a big difference in determining your income for a given year – thereby affecting your tax burden.
Strategy #4: Deduct Certain Employee Benefits
There are many ways to provide tax-free benefits to your employees and yourself. These benefits even include health and dental plans. Whether you you’re able to deduct certain benefits depends on your business structure and the individual benefit in question.
Strategy #5: Get Professional Help
If you use tax preparation software, be mindful that it’s only a tool, not a replacement for an expert. Your best tax strategy is to partner with someone who is capable of providing you with the tax-saving tips that are specific to your small business.