Oftentimes, a small business owner comes up with a brilliant idea but is stymied by the initial capital required to get started. When money is tight, saving on taxes becomes an important matter. A growing amount of small businesses are turning to tax planning and tax preparation as ways to keep more of their money in their own hands. It is imperative as a business owner to have a good relationship with a CPA that can help you plan how to operate instead of just filing your taxes. The CPA should be knowledgeable about your goals and how to help you get there. Not All CPAs are equal so make sure to interview the CPA since this is an important part of your life. They need to be extremely knowledgeable about your industry and taxes pertaining to it.
Taxes can be a big expense for many small businesses, but there are many ways to reduce your taxes and save money. Therefore it is imperative to learn how to save on taxes for your small business. The first thing many small businesses need to do after talking with a knowledgeable CPA is to find out if they are utilizing the right business structure. From there, start saving on tax year after year with careful record-keeping and investments that support your business.
Most small businesses pay their income, Social Security and Medicare taxes by using the “pay-as-you-go” method (or the accrual method). You do not have to make estimated tax payments, file quarterly returns or pay estimated tax installments. However, if your business has other sources of taxable income and you file Form 1040 or Form 1120S, use that form to figure your estimated tax liability.
You can lower your taxable income by following these methods:
1. Write off business expenses.
2. Qualify for tax credits and deductions.
3. Reduce or eliminate capital gains taxes by investing in mutual funds.
4. Take advantage of retirement plan options, such as SEP-IRAs and 401(k)s.
Tax credits, deductions and other tax benefits can substantially reduce your business income tax. These include accelerated capital recovery system, the research and development tax credit and some income splitting strategies.
Keep track of all your business expenses and keep them separate from personal expenses. Include those related to business travel and entertainment, repairs and maintenance, utilities, property taxes, office supplies and the like. If applicable, deduct any money you spent on office rent, advertising or computer equipment used in your business. By utilizing these methods you are running your business as a business and not a hobby.