5 Simple Tax-Saving Hacks That Small Business Owners Often Miss
Everyone’s on the lookout for tax hacks, and trying to find out how to reduce tax in company is the talk of the town- especially as that dreaded season begins to appear around the corner. The deadline to file your taxes is April 15, 2020, so the clock is ticking…
Don’t sweat it, we’ve done the research to provide you with some awesome small business tax tips!
Here, we’ll dive into some of the lesser-known tax pointers that will help you make your small business tax deductions. They’re at your disposal, so don’t waste this opportunity to save some big bucks! Keep reading to find out more…
Keep your records organized
Let’s start off with the simple stuff.
We all know how stressful tax season can be, but a huge part of that stress is just a result of not having the records you need to file your taxes correctly.
So as the year goes on, be sure to not only keep invoices, receipts, bills, and all other records of transactions but make sure to also organize them in a way that makes sense to you.
That way, when the time for filing your taxes comes around, you’ll have all your ducks in a row and be able to avoid that feeling of impending doom! Preparation can make a world of difference.
Hire independent contractors
While there are some pluses to having permanent employees at your business, hiring independent contractors actually allows you to avoid certain expenses that you otherwise would have to provide under a contract of full employment.
According to government regulations, business owners are required to provide a minimum wage/salary, overtime pay, and also abide by a wide array of laws and rules that relate to payroll taxes, social security, and worker’s compensation (just to name a few).
By hiring independent contractors, business owners can avoid all of those extra rules and requirements. And since many independent contractors have their own tools and set their own work hours, the cost of completing any given project can be cut down enormously!
This is a great way to cut back on both expensive equipment purchases and paying employees for those days you might feel that their work isn’t needed!
LLC tax write-offs: register your business as an LLC
As a business owner, this may come as a shock, but you’ve got a lot to gain by getting your business legally recognized as a limited liability company (LLC).
So what is an LLC? Simply put, an LLC is a legal form of a company that provides limited liability to the owner(s). Instead of registering the business as a partnership or as a sole-proprietorship, registering your company as an LLC gives the owner(s) some of the benefits offered to big corporations while keeping the benefits offered to individual owners.
On the one hand, there’s the legal protection of the owner(s) as a result of the limited liability they hold in an LLC. On the other hand, the taxes that are paid by the owner(s) can remain at the same level as all other small businesses.
More specifically, some of the tax breaks offered to LLC’s include:
- Personal property
- Professional development activities
- Employee education and training
- Productivity or longevity awards
- S corporation status
For a deeper dive into the details of the deductions listed above, IRS.gov’s tax guide for small business has all the fine print. All in all, registering as an LLC is a great solution if you’ve been wondering how to reduce tax in company. Now you know!
But don’t stop reading just yet – there are more tax hacks to take advantage of…
Know your deductible expenses
This is where we start getting into the more detailed ways you can save yourself lots of money during tax season. Get ready for some great tax hacks from Become to help your business stay in the green.
Home office deduction
This section is especially useful if you’re looking for a small business tax break since so many small business owners work out of their homes. In case you haven’t already figured it out, you can receive a tax deduction if you simply work from home! But just like the other deductions we describe below, there are a couple of requirements in order for your home to qualify for this deduction:
- Regular and exclusive use – you must work from that area of your home on a consistent basis, and that area of the home must be used for your work only – so you can forget making your bedroom an office, you’ll need a separate space.
- Principal place of your business – you must do most of your business at your home.
Along with those qualifications, you must also take into consideration that there are two different ways to calculate the amount of money you are entitled to in the form of a home office deduction:
- Simplified option – According to the IRS, you can reduce the burden of recordkeeping by allowing a qualified taxpayer to multiply a set rate by the square footage of the home office – that way you don’t need to keep track of all of your expenses.
- Regular method – Where the simplified option uses a “prescribed rate” to multiply by the square footage of your office, the regular method requires you to calculate the actual expenses of your home office (insurance, utilities, mortgage interest, repairs, depreciation, etc.). While it takes more time and effort, if done correctly, it will be more accurate in measuring your small business tax break.
Take advantage of IRS Section 179 deductions
Every business will eventually come to the point where it needs to make purchases in order to ‘keep the ship floating’, or simply wants to make improvements. When your funds don’t align with your professional goals, business loans sure can come in handy. Now, there are many different types of business loans that can be used for all sorts of things, this guide to business financing will show you the best options for your needs.
But during this tax season, don’t miss the opportunity as a business owner to take full advantage of the tax deductions that are made available through Section 179!
The benefits offered by Section 179 of the IRS tax code allow for deductions to be applied for purchases of property that fit into any of the following categories:
- Vehicles weighing over 6,000 pounds
- Business furnishings (furniture, computers, etc.), also referred to as ‘contents’
- Real estate (the deduction rate is dependent on the percentage of time the property is used for business purposes)
- Improvements (security systems, fire alarms, HVAC, etc.)
Requirements in order for the purchase to be eligible for a Section 179 deduction:
- The property must have been purchased for the purpose of conducting business.
- The property must be depreciable; in other words, the value of the property must decrease over time.
- The property must be put into use the same year that the purchase was made; if a purchase is made but the property is not actually used, it will not be eligible for a Section 179 deduction.
One especially helpful part of Section 179 is that it allows the deduction to be made all at once, instead of spreading that deduction over the period of time that the property remains useful. This means that for those items which depreciate quickly, the full deduction can be made in one year before the property would have more time to lessen in value.
That is one serious tax hack for any business that needs to replace their equipment!
We promised you small business tax tips for big savings, and we delivered! The tax pointers we’ve listed above can help you make full use of all those small business tax deductions that are available.
More importantly, these tips will keep your stress at a minimum. We know how difficult that can get during tax season.
So don’t let tax season get the best of you. Make sure to keep this page bookmarked for future reference if you ever need a quick refresher on these tax hacks.