Published On: Sat, Aug 26th, 2017

Reducing Small Business Tax Burden

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When you’re a small business, getting to grips with your tax burden can be particularly stressful, especially when it feels like you’re being asked to pay too much at a time when every penny counts. The good news is that most small businesses out there will be able to do something to reduce their tax burden legally and send less of their revenue off to the government.

Here are just a few little-known ways to cut the amount of small business tax you pay:

Hire a Family Member

Hiring a family member is one of the best ways to cut small business taxes because the IRS will allow you to employ children who are as young as seven, and there will be tax breaks for doing so. You can also hire a spouse and have it reduce your tax burden too. If you want to go down this route, it’s always a good idea to speak to a tax lawyer that routinely represent taxpayers first, just to ensure that you’re doing it right and complying with all legal obligations, otherwise you could find yourself in hot water. But, it is possible, and it will save you money.

Set Up a Retirement Plan

If you’re a small business owner, you won’t be able to benefit from a 401 (k) match, but by starting your own individual 401 (k) you will be able to save as much as $53,000 for your retirement, minimizing the amount of tax you have to pay, and ensuring that you have a nice nest egg left over when the time comes for you to actually retire.

Save for Your Healthcare

Putting money aside for your future healthcare needs is also a great way to reduce your tax burden as a small business. All you need to do is open a Health Savings Account, providing you have an eligible health plan, and won’t have to pay nearly as much tax as you might otherwise.

Make use of Carryovers

Some deductions and credits have limits that can stop your small business from using them all to the limit in the present tax year, but the rules allow them to be carried over into the next tax year. If you aren’t making use of these, then you are almost certainly missing out and paying more tax than you might need to. Examples of things that can be carried over include charitable contribution deductions, capital losses, and general business credits.

 

Alter Your Business’ Structure

As a small business owner, you can’t benefit from having an employer paying a fraction of your taxes, and you are responsible for Medicare and Social Security taxes. This can all add up to a great deal of your revenue being handed over to the government. However, if you make your business a Limited Liability Company, you may be able to slash the cost of Medicare and Social security in half by paying yourself a salary, so that only that salary is subject to these taxes. Doing something like this can be complicated, so please do seek professional advice before making any changes.

Abandon Property

If your small business owns property that has no value, it could be worth abandoning it rather than trying to sell it for a nominal amount because you will then be able to take an ordinary loss which is completely tax deductible, whereas if you sold the property, you would still have some tax burden to pay on it.

Deduct Your Travel Expenses

If you do a significant amount of traveling as part of your business, you could reduce your tax burden by deducting your travel from your taxes if you don’t already. You could make even bigger savings by combining personal travel with business travel so that you rarely have to pay for any of your travel expenses again.

Utilize Accountable Plans

Using accountable plans to reimburse your employees for things like travel, tools, entertainment and other associated business costs is another good way to reduce employment taxes each year.

The Bottom Line

With careful planning and some creative thinking, you should be able to reduce your small business taxes and keep more of your profits in the business, where they will work to make you, even more, profits so ensure that your business doesn’t sink without a trace. Just be sure to consult with a good tax professional before you make any changes, to ensure that you don’t fall foul of the law and end up being penalized for unwise decisions.

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