8 Important Tax Tips for Businesses
Emily Sperry December 20, 2019
If you’re a business owner, you know the importance of counting every penny so that your business can make a good profit. Paying as little taxes as possible can significantly help in making the best profit possible. Now that tax season is upon us, most business owners are scrambling to get their tax returns ready. Here are eight basic tax tips for businesses, along with some considerations and warnings.
1. Choose the Right Corporate Entity
One of the main mistakes small business owners make is not selecting the right corporate structure or entity. Just because you have a small business doesn’t mean you can’t become an LLC (limited liability company). This is a corporate business structure in which a business owner isn’t personally responsible for company debts or liabilities. By registering as an LLC, you can prevent having to pay a self-employment tax. Another benefit is it can give you additional tax benefits.
2. Regularly Track Everything You Spend
Although tracking your business expenses can seem overwhelming, it’s really easier now. For example, you can review your annual credit card expenses online since most credit cards have this information available on their websites. An even better way to have a record of every item you spend is by using software, such as Quicken or QuickBooks. These software aides give you a chance to see every deductible expense for a year as well as past years.
3. Use Tax Software
Using tax software, such as Tax Turbo and others, isn’t just an option when you run a small business. Instead, in today’s world, it’s a must-have item. In other words, ditch the paper tax forms. You’re much more likely to make mistakes when you use paper returns instead of using tax planning software.
4. Stay Updated on All Tax Law Changes
It’s critical that you know about all the latest tax law changes. In fact, there are some changes, such the Jobs Act and the Tax Cut that can benefit taxpayers, while other changes won’t help you. By keeping updated with all the tax changes that occur throughout the year, you’re able to make better choices when preparing your tax return.
5. Deduct Auto Expenses
Be sure to deduct any auto expenses when using your vehicle for business purposes. Using an app to record your gas bills for business makes you more prone to not overlook your driving expenses. Apps are also useful in organizing your business trips. Furthermore, you can also deduct auto costs for driving your car for charitable purposes.
6. See If Your Business Qualifies for Section 199a
Take a hard look at IRS Section 199a and see if your business qualifies. This law, which went into effect the beginning of 2019, allows for as much as a 20 percent tax deduction for specific businesses, estates and trusts.
7. Take Advantage of Tax-Deferred Retirement Plans
Another huge way to save on business taxes is taking advantage of tax-deferred retirement plans. This is a savings plan allowing taxpayers to delay paying taxes on money that’s been invested until it’s withdrawn after someone retires.
8. Use More Independent Contractors
By hiring more independent contractors you can save money on your Medicare and Social Security taxes. However, just be aware of the legal requirements needed, so you won’t get in trouble with the IRS.
Other Considerations and Warnings
- Don’t forget to deduct start-up expenses. On the other hand, you can’t deduct these costs until you make your first sale.
- If you plan to sell your business within the next five to 10 years, think about converting it to a “C corporation”. By taking advantage of Section 1202, you’re able to sell stock without having pay a tax on your gain, provided you’ve had the stock for at least five years, and your business is classified as a C Corporation.
- Instead of spending money to store your unused or unsold inventory, donate it so that you can receive a tax deduction. Often, businesses donate their unsold items that are considered as deductible expenses. Just be aware that the higher the value of the goods, the stricter are the reporting regulations.
- Hire a tax professional—If you’re too busy to do your own tax returns or don’t feel qualified, you can always hand over this job to a tax professional.
- Know all the deductions you’re allowed to take for your business.
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