“In this world nothing can be said to be certain, except death and taxes.”
Benjamin Franklin
No one likes paying taxes. The IRS loves to collect them, however! For small businesses, taxes just seem to eat into your bottom line, they are a pain to do (or have done) and no one feels warm and fuzzy when they write their quarterly or annual check to Uncle Sam. The goal of this blog is to help you discover some strategies you might not have thought about that can save you from paying too much in taxes.
Tax Strategies for Small Business:
There are 3 basic goals when planning your small business’ tax strategy:
- Reduce your overall income (on paper)
- Increase your number of tax deductions throughout the year
- Take advantage of certain tax credit available for small business.
*Before we break these out to give you a few strategies you may not have thought about – did you know we have a Tax Planning and Reporting Module? Check it out! It will help you understand different types of taxes you may be accountable. Also, use the IRS Video portal for Small Business Tax Workshops available online. Talk to your SBDC mentor or your CPA for informational tips for your taxes not only for year end, but for next year too!
Strategies for reducing your overall income:
Yes, that sounds like the opposite reason you went into business…no one wants to make less money. However, when you are talking about taxes – less income = less taxes. The less tax you pay, the more money you keep.
Here are some ideas for reducing your income (on your tax return):
– Consider your filing status:
- LLC – Has the flexibility to be taxed like a corporation
- C – Corporation
- S – Corporation
- Pass-through business -vs- Corporation
- Sole proprietor
- Partnership
Pass-through businesses, such as sole proprietorships, partnerships, LLCs and S corporations, don’t pay a corporate income tax. Instead, the company’s net income “passes through” to the owner’s individual tax return, where the highest tax bracket is 37%. Corporation tax rates can be higher than personal tax rates, depending on the annual income.
While the Inflation Reduction Act of 2022 brought back the corporate alternative minimum tax (AMT), small businesses won’t be impacted. The new 15% corporate AMT applies only to C corporations with an average annual income of over $1 billion.
– Increase number of tax deductions:
Always check with your accountant, but here are some ideas for additional tax deductions –
- Hire family members as employees and gain the full deduction.
- Write off expenses like utilities, rent, mortgage and cleaning services.
- If you use your cell phone just for business, you can write off the expense.
- Consultants, lawyers, accountants and other professional services are deductible.
- Office furniture, supplies, printers and computers can be deducted (some might need to be depreciated, so ask your accountant.)
- Travel for business, trade publications, even magazines for a waiting room can be used as a tax deduction.
- Set up a retirement account, such as a 401K for yourself.
– Take advantage of certain tax credits available for small business:
- WOTC – Work Opportunity Tax Credit – Offered when you hire and retain certain target groups of individuals.
- Disabled Access Credit – Offered when facilities are updated to accommodate disabled employees or customers.
- Credit for Health Insurance Premiums – There are some specific requirements for this tax credit, so check with your accountant.
Do I need an accountant or tax advisor?
Unless you ARE an accountant or tax advisor by training, yes – you really do need to hire one for your small business. The money savings as well as keeping your deductions and expenses on the up and up, make them invaluable. (And their fees can be deducted as part of your business expense.) It’s always a good idea for you, the business owner, to keep up to date on changes with the tax law. You can also double check that your advisor or accountant is taking advantage of all of your deductions!
Trinity Valley SBDC is a partnership program with the U.S. Small Business Administration, the State of Texas, and Trinity Valley Community College. Advising services are offered by Trinity Valley SBDC without regard to race, color, age, national origin, religion, sex, or disability. Special provisions will be made for limited English-speaking individuals and those with disabilities. Those interested may contact us at 903-675-7403.
The North Texas Small Business Development Center Network is funded in part through a Cooperative Agreement with the U.S. Small Business Administration and Dallas College. The North Texas SBDC is an Accredited Member of the Association of Small Business Development Centers. SBDCs are supported by the U.S. Small Business Administration and extended to the public on a non-discriminatory basis. The SBA cannot endorse any products, opinions or services of any external parties or services. Reasonable accommodations for persons with disabilities will be made if requested at least two weeks in advance. Language assistance services are available for limited English proficient individuals.
All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the U.S. Small Business Administration or other funding partners.