You’re a successful small business owner and you know your operation inside and out. However, you’re probably not an expert in preparing and filing your taxes so you’re probably missing out on some credits and deductions that could save you money.
You should consider hiring a CPA, who is an expert in exactly that. Or perhaps you want to donate some office furniture to a local charity.
Have you claimed the 199A Qualified Business Income Deduction or appropriate home officer expenses?
These are just a few of the ways you can reduce your tax burden as a small business owner.
Here’s a look at some simple tax savings for small businesses.
Research into tax credits for small businesses
Learn all of the tax credits that apply to your small business because, in general, they offer more bang for their buck than deductions by lowering your tax bill.
Let’s say your tax bill comes to $4,000 but you have $1500 in tax credits, you’ll end up owing $2,500 in taxes.
Deductions, on the other hand, reduce the amount of income that can be tax and are generally applied before credits.
Here are a couple of small business tax credits to bear in mind:
- General business credit is a grouping of 25 separate tax credits that get reported on IRS Form 3800.
- Small Employer Health Insurance for small businesses offering health insurance to full-time employees
- Employer-Provided Childcare Facilities and Services lets you claim a credit of up to 25% of your contribution to an employee’s childcare.
- The Work Opportunity Credit lets you claim a tax credit between $1,200 and $9,600 if you hire someone the IRS has identified as having significant barriers to employment, including veterans, ex-felons or a Social Security Insurance recipient.
One of the best tax-saving tips is to keep accurate records so you can deduct every dollar you can.
If you’re rifling through a box of receipts at year-end, you’re probably missing something you could claim.
You should keep a separate bank account only for business and use bookkeeping software to keep track of all expenses.
Save your receipts by either placing them in a file sorted by month or attaching electronic copies to your bookkeeping software.
Hire a CPA
Hiring a qualified CPA is another essential tax-saving tip. They are license by individual states and must pass an exam and complete continuing education courses.
Their sole focus is tax planning so they are more than likely going to find savings that you or even your bookkeeper(who mostly specializes in keeping track of your finances) aren’t thinking about.
It can be a little more expensive but the savings they find could very well pay for their services.
Donate old business equipment
This is a slightly out there tip and one that isn’t often use but you can donate what you aren’t using to a 501(c)3 nonprofit.
If you’ve got a bunch of perfectly good office chairs or a printer that isn’t use anymore, donate them to charity and deduct the fair value of the item.
You can also claim a Section 1231 if it’s not worth donating and should simply be throw out.
Claim the 199A Qualified Business Income Deduction
The qualified business income (QBI) deduction is equal to 20% of income flowing through your personal return from your small business, whether that is a sole proprietorship, partnership or s-corp.
The QBI is available for the years 2018 to 2025.
There are a couple of restrictions but don’t apply to joint taxpayers with taxable income of less than $340,100 or $170,05 for a single taxpayer.
Even if you earn more, you can still claim some of the QBI.
Spend money on a business structure
Another tip for saving tax as a small business owner is to consider buying a building for your business instead of simply renting.
They can be a great tax shelter because you can deduct the expense of the building, sometimes called a phantom expense, as the value of the property increases.
Claim Home Office Expenses
Since the pandemic, much more of our business has been moving towards a work-from-home model.
If you have a home office you can write off the cost of set up like painting or renovation, part of mortgage interests and real estate taxes related to the business use of your home.
You must be able to justify a home office setup and you must use it regularly and primarily for business. The space should be use for business purposes only and not for personal use.
Set up a retirement account
Another tax-saving tip for small business owners is to contribute to a retirement plan like a 401(k) or IRA, either for yourself or for your employees.
Your contributions to your own retirement account are tax deductible up to a limit and you’ll pay income tax when you take the money out in retirement.
You can also save on employer payroll taxes by contributing to an employee’s retirement account.
Use tax software
One of the cheapest and easiest ways to save money at tax time is to use tax software to help calculate deductions if you don’t want to go the CPA route.
Being a successful small business owner means saving every dollar you can so you can grow your business for the long term.
This also includes taking a serious look at how you’re filing taxes to make sure you claim all of the credits and deductions you’re legally entitle to.
Keep organized and use accounting software if you don’t have a bookkeeper. Think about buying a building instead of renting. And contribute to both your and your employee’s retirement savings.