There are more than 27.9 million small businesses currently in operation. And those businesses serve hundreds of industries, employ thousands of people, and make an impact in their communities.
However, they all share one thing in common: they have to pay taxes.
What most business owners don’t know is that they’re often paying far more each year than they need to. And the more money you send to the IRS, the less you have to grow your business.
So, how can you cut back on tax costs? Use these simple small business tax tips to maximize your deductions.
1. Keep Track of Your Expenses
The best way to reduce your tax costs is to deduct all qualified business expenses. This includes rent for your building, utilities, and even work-related travel expense.
But to do that, you need to keep track of what you spend on each thing. Start a file and keep all of your receipts.
You’ll need these to justify the deductions with the IRS. If you are unsure as to whether a deduction qualifies, check out the IRS deductions page.
2. Separate Your Personal and Business Expenses
In order to keep track of your expenses, you’ll need to separate your business and personal accounts.
Think of it this way: when you separate your business and personal expenses, you’re giving yourself a chance to take more deductions on your taxes.
Business deductions and personal deductions are different. But when you separate your accounts, you’ll end up maximizing those deductions and saving money on your taxes each year.
3. Stay Up-to-Date on Inventory
If you stock products and keep them on hand at all times, staying on top of your inventory is necessary. Not only does it help you stay on budget, but it also could save you money on your taxes.
Inventory values can change the longer you have the items in stock. When the value decreases, it’s a loss for your business. You spent the money and can’t get it back.
But you can deduct that loss on your taxes.
4. Make Bookkeeping a Priority
Taxes aren’t easy and the more information you have at the end of the year, the better off you’ll be around tax time.
Take the time to make bookkeeping a priority. Track your expenses every month. Keep records of all purchases, organize them and monitor how your business is doing every quarter.
5. Hire an Accountant
As we mentioned before, taxes aren’t simple and the tax code changes every year. This makes it hard for business owners to get the most deductions on their own.
Instead of battling it out with complicated forms, get help from an experienced accountant. They know the tax code better than anyone else. And they’ll help you find deductions you didn’t even know were an option.
As an added bonus, they’ll also handle the tax preparation process so you can focus on running your business.
6. Register Your Business the Right Way
Different types of businesses have different tax benefits. For example, many sole-proprietors can save hundreds on taxes each year if they structure their business as an LLC.
Start exploring your options and find the right classification for your company. Then, take the time to restructure and register your operation properly.
7. Make Quarterly Payments on Time Every Time
Every business owner has to file quarterly estimated taxes. You work for yourself, so no one is withholding those taxes for you.
And if you miss a payment or pay too little by the end of the year, the IRS may charge you a hefty fine.
Set up phone reminders, put the quarterly tax dates on your calendar, and make sure you send them on time. Once you do, keep track of how much you sent and on what date you sent the payment.
If you’re audited, this information can help straighten things out.
8. Classify Employees the Right Way
Business owners can classify their workers in three main categories: full-time employees, part-time employees, and contract workers. Full-time and part-time employees increase your payroll taxes.
But hiring people to do full or part-time work and classifying them as contract workers to avoid payroll taxes will get you in major trouble. At best, you’ll face costly back taxes if you’re caught. At worst, the IRS will give you a huge fine.
Every time you hire someone, make sure they’re classified correctly. If you’re not sure, talk to your accountant.
9. Keep Track of Your Employees’ Wages
No matter what type of workers you hire, always keep track of what you pay them. You can deduct those payments as part of your business expenses. Maintain records for every payday throughout the year.
Once you get close to filing your taxes, you’ll have a clear idea of how much of your money went towards labor. And you can deduct most of that amount from your tax liability.
10. Pay Attention to Your Personal Income
Reducing your taxable income is a great way to save money. So, where do you start? By making regular contributions to your retirement plans.
Most retirement contributions get taken out on a pre-tax basis. This means you don’t pay income tax on the contributions until you start making withdrawals from the account.
When this happens, the total amount of money the IRS bases your tax rate on is lower. When you maximize your contributions, you could save hundreds on your taxes each year.
Make the Most of These Small Business Tax Tips
As a business owner, you have more important things to worry about than then ins and outs of taxes. Use these small business tax tips to help reduce your tax liability and save money each year.
The more money you save, the more you can invest in your business. And the more money you have, the faster you can grow.
But what if you dream of being your own boss but don’t know where to start? Send us a message and find out how to become a successful franchise owner today.