When you run a business, tax season can feel like pulling teeth. The last thing you need is for the government to demand more of your hard-earned money than absolutely necessary. Reducing the tax burden on your business becomes increasingly important for the longevity of your business and the security of your employees. Here are five tips for lowering your business taxes next time around.
1. Write Off Business Expenses
There are some unavoidable expenses that come with operating a business. Office supplies, insurance, travel expenses, and renovations are all sometimes necessary to keep business flowing. Even keeping the lights on is a necessary financial burden. Much of these innate costs can be written off as tax deductions, or at least portions of each expense.
While the cost of doing business can be a burden on the front-end, your potential tax write-offs can add up substantially. However, because only a portion of these costs will usually apply for a tax deduction, it is still important to cut costs wherever possible. You can save money on utilities with energy-efficient appliances and reduce company car expenses by shopping around for cheap car insurance deals.
2. Be Charitable
Charitable giving is another great opportunity for your business to accrue tax deductions. Of course, charity should be given in the spirit of helping others; however, it is nice to know that even the IRS will reward your generosity next April. A percentage of your net taxable income can be offset by your overall charitable donations.
The potential deductions for charitable giving are not limited to gifts to nonprofits and charitable organizations. You can also include gifts given to customers, vendors, or any other entity that is not associated with your business.
3. Look for Tax Credits
When you are trying to lower the amount of money the government requires of you in taxes, sometimes the best place to look for a break is the government itself. Federal tax credits are available if your business meets certain prerequisites. These tax credit programs are designed to help small business owners mitigate the tax burden and promote further business expansion.
For example, you may be able to receive tax credits based on hiring practices, energy efficiency, public services, and employee health care insurance coverage. While some tax credits’ prerequisites may currently be beyond your company’s reach, many only require simple changes with little out-of-pocket expense.
4. Open a Retirement Plan
Anytime you provide a financial benefit to your employees beyond the scope of their paid labor, you create an opportunity to improve your overall business. What you may not realize, though, is that some financial incentives like company-funded retirement plans are qualified for tax deductions.
The IRS recognizes certain retirement plans, such as IRAs, 401(k)s, or 403(b)s, as an allowable deferment on earnings. This means that the money your business puts into eligible accounts is deductible from your current fiscal year’s taxes.
5. Work With a Tax Professional
Of course, the wisest choice of all is to find a qualified tax professional to help you make the most of your potential deductions. Professional tax advisors can help maximize these previously mentioned deductions as well as uncover any number of possible write-offs by carefully examining your business.
Perhaps even more importantly, working with a tax professional gives you and your business a safety net should you be audited by the IRS. Look for a trained professional who can help prevent mistakes when filing, prepare you for the event of an audit, and represent you to the IRS.
The key to reducing your tax burden next April lies mostly in finding as many deductions as possible. Government tax credits, while incredibly beneficial, can change with each tax season, and the percentages of your expenses allowed to be used as deductions also change with nearly every new piece of legislation on the books. Stay up to date on what expenses are applicable and work with a professional to get every possible deduction to lower your business’s tax burden.
