Although small business owners have a lot on their plate, tax planning should be a priority. Creating a financial plan to maximize your income and reduce your tax burden can help you profit more from your business.
The best way to plan for taxes as a small business is to do so throughout the year—your tax bill shouldn’t be a surprise when tax season comes around. Proper planning can help keep your tax bill low.
Here are five things small businesses should be doing throughout the year to properly plan for their taxes and reduce the amount they owe.
Utilize Ways to Make Deductions
Reducing your adjusted gross income can help reduce your tax bill and even put you in a lower tax bracket.
You can do this by taking advantage of ways to make deductions on your taxes throughout the year. For example, you can deduct travel expenses, rent for an office, a home office, internet, and contributions to retirement or charities.
Doing these things throughout the year and properly tracking expenses helps ensure you make the proper deductions when tax time comes.
You can even pay off debt on a loan or credit card to help reduce your adjusted gross income because the IRS allows businesses to deduct the interest on their taxes.
In addition, if you pay for your own health insurance as a small business owner or sole proprietor, you can deduct some or all of the costs of your healthcare premiums on your taxes.
Track Your Business Losses
Business losses can help reduce your tax burden, so tracking losses can help offset your income for your taxes. Consider using software to track your expenses and profits and losses to make things easier at the end of the year.
It doesn’t necessarily matter what system you use for accounting as long as you are consistently using it. You can claim losses from normal business operations as well as from business property such as vehicles or equipment.
Should you have a significant loss one year, such as a net operating loss, you may be able to carry this loss into future tax years if you continue to have a profitable business.
Add Family Members to Your Payroll
If you have a family-owned business and your spouse or children contribute, they can go on your payroll. Children under the age of 18 aren’t subject to Social Security or Medicare taxes if the business is a sole proprietorship or partnership in which each parent is a parent of the child(ren).
There may be additional tax breaks for family businesses that have a spouse or children working for them, so don’t overlook these. Plan ahead for tax time by putting your spouse or children on the payroll if they assist you with any justifiable business-related tasks.
Make Regular Tax Payments
Small businesses are typically required to make regular tax payments quarterly throughout the year. Planning for these payments can help you avoid penalties for not paying (or not paying enough) and reduce your overall tax bill.
To do this, you will need to properly manage your cash flow and set aside money to pay estimated taxes every quarter. You can put the money in a separate account and even set up automatic payments if you are able to so that you never miss a payment.
Work With a CPA
You don’t have to plan every detail of your small business taxes on your own.
Working with a Certified Public Accountant (CPA) can help you successfully navigate your business taxes and ensure you are reducing your tax burden as much as possible, which is one of the best ways to keep more of your income as a small business.If you have a small business and want to minimize your taxes, contact Scharf Pera & Co., PLLC, to get started with your small business tax planning today.