Table of Contents
This article will provide 27 tax-saving tips for business owners. These suggestions should help any company save on taxes, increase profitability and lower their risk of an audit by the IRS.
Taxes are a necessary part of operating a company. You must be informed of which taxes must be paid and when they must be paid. It might be difficult to plan ahead, but doing so can help you file on time and claim the correct deductions. Experts offer the most efficient tax-saving strategies for businesses.
The following are the top 27 tax-saving techniques directly from the pros:
1. Don’t put the cart before the horse when it comes to taxes.
Jennifer Correa Riera, Tax Attorney, Fuerst Ittleman David & Joseph
Tax concerns may cause company owners to lose sight of their principal goals, which can be detrimental to their companies. For example, company owners may transfer to tax-advantaged countries only to learn later that the administrative and compliance expenses, as well as the danger of being audited, outweigh the tax savings. Similarly, corporations may participate in transactions that have little economic value but result in favorable tax treatment.
For example, in order to make their payouts tax-free, firm owners may characterize stock contributions as loans. However, if the transaction’s content and form are incompatible, the IRS may investigate, conduct an audit, and file a lawsuit. As a result, it is vital for companies to build and implement effective tax strategies (with the aid of a tax expert) that take into account the company’s goals as well as possible tax benefits and deductions.
2. Form an LLC for your company.
David Brooks Sr., Founder & President, Retire SMART
Many small firms make the error of believing they are “little” and fail to see the significance of selecting the right organizational form. There are a number of sole owners who would greatly benefit from forming an LLC. This might reduce part of the self-employment tax and bring other tax advantages, especially now that the new tax legislation has been implemented.
3. Make use of tax-advantaged retirement accounts
Samuel V Hicks, CPA, MST, Stern, Kory, Sreden & Morgan
Retirement plans are the finest proactive tax-saving strategy accessible to company owners today. No other cost permits owners to claim a deduction without foregoing the money paid to get the tax advantage. The money must normally be retained in a retirement account until a specific age is reached, but the funds’ growth is tax-deferred until they are distributed.
4. Take advantage of Section 179 of the Internal Revenue Code.
Steven R. Dorfman, CPA, Managing Partner, Dorfman & Company LLP
Section 179 of the Internal Revenue Code enables companies to deduct the entire purchase price of equipment and/or software up to $1,000,000. This implies that the cost of personal property that is ordinarily depreciated over seven years may be completely deductible in the year it is acquired up to $1,000,000. It doesn’t make sense to spend money on furnishings and equipment that you don’t need only to take advantage of this tax break. However, if someone is planning to buy in the following few months anyhow, they may want to consider purchasing before the end of the year to take advantage of the discount.
5. Keep Current on Tax Law Changes
Canopy’s Michael Law, CPA
Some tax reforms, such as the Tax Cuts and Jobs Act, were particularly beneficial to taxpayers. Other tax adjustments, on the other hand, are less advantageous. Being informed of tax developments and how they may affect your small company is essential for making the best choices throughout the year as well as when completing your tax return.
6. Take Advantage of Depreciation Bonuses
Rapid Filing Services LLC CEO Willem Veldhuyzen
Your bonus depreciation rate jumps to 100% if you buy a commercial property and put it into operation after September 27, 2017, but before January 1, 2023. In addition, cars placed in service after December 31, 2017, are eligible for a maximum depreciation of $10,000 for the first year (or $18,000 if the bonus depreciation is 100 percent).
7. If you work from home, you may claim a home office deduction.
Charles Corsello, EA, President & Co-Founder, C&V Enterprises, LLC
A home office deduction is one method to save money on taxes for your small company if you work from home. It applies to both renters and homeowners, although there are certain IRS rules to follow. To begin, your home office or room must be utilized consistently and only for performing business. It will not qualify, for example, if your children watch TV in the same room. Second, it should be your primary company location. You may still qualify if you do business outside of your house but utilize your home office extensively and on a regular basis.
8. Use IRC Section 170(e) to your advantage
NAIER President Gary C. Smith
If your business sells items of any type, you should be aware of Internal Revenue Code Section 170(e)(3), which provides C companies with a large but little-known tax advantage. It has the capacity to transform a long-standing company liability—surplus, outmoded inventory—into a substantial financial asset in the form of a legal tax deduction. Internal Revenue Code 170(e)(3) is now one of corporate tax law’s best-kept secrets. However, if every C company took use of it, it would change how corporations dispose of worthless inventories while making NGOs vastly more successful in assisting the poor.
9. S Corporation Tax Election Form 2553 Should Be Filed by LLCs
Incfile’s Business Development Leader, Dustin Ray
If your company is an LLC, filing an S Corporation Tax Election might help you save a lot of money on taxes (Form 2553). This form instructs the IRS to tax your LLC as a S company, lowering the amount of self-employment income you must pay.
Assume your company made $120,000 in sales this year, with $90,000 in profit and $30,000 in costs. You would pay self-employment tax on the whole $90,000 under a conventional LLC tax setup. You would owe $13,500 in self-employment tax, which is around 15%. If you chose to be taxed as a S company, you may state your salary is $50,000 and pay $7,500 in payroll tax. The remaining $40,000 would be a distribution, and you wouldn’t have to pay any payroll or self-employment taxes on it, saving you roughly $6,000.
An S Corporation Tax Election is one of the most effective methods for an LLC to save money on taxes, but it’s a little-known trick that many company owners are unaware of.
10. Purchase Captive Insurance
Anthony E. Parent, Esq., Founding Partner, Parent & Parent LLP
Getting a Captive Insurance policy is one of the most neglected methods for companies to save money on taxes, as well as one of the finest asset protection measures a company can undertake. A firm will construct its own insurance, which is referred to as “Captive.” Premiums paid to the Captive are tax-deductible for the corporation, but they are not revenue for the Captive. This not only allows for the unlimited postponement of profits, but it also means that the money will be taxed—albeit at reduced dividend rates—upon the Captive’s succession. There are newer products available for small businesses, but a Captive typically requires at least $500,000 in earnings and $2,000,000 in revenue to make sense because there is some compliance and tax work to be done.
11. Take Advantage of Section 199A of the Internal Revenue Code
Tatyana Bunich, President & Founder, Financial 1 Wealth Management Group
The most critical tax move you can make as a company owner is to review section 199A of the new tax code. It’s the most significant shift that most people aren’t aware of for company owners. This deduction is available to self-employed company owners as well as any other pass-through organization. Taxpayers may set up pension plans to cut their income before the end of the year, making them eligible for the 20% tax reduction. This deduction might save you more than $100,000 in taxes.
12. Organize your documents
Derek Carter, CPA & Chief Solutions Officer, Ceterus
Don’t waste time in January and February operating your company by hurrying to gather your records and receipts for tax preparation. Get organized today and keep it that way. Clean books and accurate supporting paperwork will guarantee that you take advantage of all tax perks and avoid late filing penalties while also lowering your tax preparation expenses.
13. Instead of hiring full-time employees, hire independent contractors.
Glass Jacobson Financial Group’s Managing Director – Tax Services, Steven G. Albert, CPA
The advantage of employing independent contractors rather than employees is that you may engage them for work depending on your requirements, so you don’t have to keep them around when you don’t need much labor. You may also deduct them from your employment expenses, such as Social Security and Medicare taxes, corporate retirement plans, and other employee benefits including medical, life, and disability insurance, as well as vacation and holiday pay. There are certain legal criteria that you must follow, so check the IRS website to ensure that you remain in good legal status.
14. Make Use of an App to Help You Plan Your Business Trips
Jolene Rheault, Owner & Founder, Refresh Marketing
To help your company save money on taxes, you may deduct business-related driving expenditures. A fantastic approach to achieve this is to use an app that helps you arrange your business travels. There are a variety of applications available, such as DriveDollar, that may help you manage your travels and figure out which ones are tax-deductible.
15. Be aware of any deductible expenses that your company may be eligible for.
KVLSM LLP Partner Anthony J. Viola
All companies are always seeking for methods to reduce their tax liabilities by taking advantage of any and all business deductions that the government taxation bodies allow. Make a list of any deductible costs that are directly related to running your business and include them in your tax return.
16. Contribute to a retirement plan to lower your personal taxable income.
Martindale-Hubbell Legal Editor Diana Fitzpatrick -Nolo
Contributions to a retirement plan are one of the simplest methods for company owners to minimize their own taxable income. Contributions to retirement plans lower personal taxable income, allowing owners who are near to or beyond the thresholds to attempt to lower their taxable income by contributing to their retirement plans. They will subsequently be able to claim the entire 20% deduction on their eligible pass-through company income.
17. Use IRC Section 1202 if you want to sell your business in the next 5-10 years.
WealthAbility’s CEO, Tom Wheelwright, is a CPA.
If you expect to sell your business within the next five to ten years, you should consider changing it to a C corporation to benefit from the Section 1202 gain exclusion. If you own stock for more than five years and the company is a C corporation, Section 1202 permits you to sell it without paying tax on the gain.
This isn’t simply true for start-ups. You may incorporate a subsidiary that is a C corporation and donate your company assets to the corporation in return for shares if you are a partnership or S corporation. Because partnerships and S corporations may possess Section 1202 stock, this new corporation stock qualifies for the gain exclusion if you own the firm for another five years.
18. If you invest in real estate, take advantage of the rental property tax deductions.
We Buy Houses Atlanta; owner Shawn Breyer
If you operate a house-flipping firm, it makes sense to invest in tiny flats as well. This enables you to deduct rental property tax deductions from your earnings while also increasing cash flow to help maintain the company when it naturally varies due to project delays or market cycles. Because this asset class is similar to their present business, any firm that services the real estate market may benefit from this method without losing focus on their primary business.
19. Make sure you file your taxes on time.
Lynn Udovich, Senior Tax Manager- Entrepreneurial Services, Nussbaum Yates Berg Klein & Wolpow LLP
The Internal Revenue Service may impose late filing and late payment penalties if you do not file and pay your taxes on time. The severity of the sanctions will depend on the kind of business organization. C companies, for example, may face a late filing penalty as well as a late payment penalty on any unpaid tax due. The number of partners in a partnership might result in a late filing penalty. S companies may face a late filing penalty depending on the number of shareholders, as well as a late payment penalty on any unpaid tax. A similar technique is used by state taxation bodies. For a small firm, these fines may be significant. Even if you are unable to pay the tax, you should still submit your tax return on time to avoid penalties and demonstrate good faith.
20. Auto Expenses Can Be Deducted
Founder of Dime Will Tell, Dustyn Ferguson
You may deduct the expenditures connected with driving a car for business reasons, whether it’s part of the company or merely to go to the workplace, even if it’s a personal vehicle, if you utilize it for business purposes. You may now deduct 54.5 cents every mile traveled for business, which can build up quickly over the course of a year. This may have a significant influence on the amount of taxes you owe at the end of the year if you’re a small company.
21. Donate Unused Inventory
MoneySavingPro
Instead of paying money to keep unsold or unwanted goods, donate them and get tax benefits. Donations of money, goods, and property made by a company are all tax-deductible. Donations of commodities valued at more than $500, however, are subject to tougher reporting requirements.
22. Consider Hiring a Tax Advisor
CPA Practice Advisor’s Managing Editor, Isaac M. O’Bannon
Even if you believe you can prepare your taxes on your own using one of the do-it-yourself internet applications, hiring a CPA or other tax expert is frequently less expensive than you think. An experienced tax expert has seen it all and understands how to maximize your tax advantages and deductions. This frequently saves the taxpayer or company at least as much as the tax professional’s cost, plus you have the assurance that your returns were correctly prepared and submitted.
23. Track Your Medical & Charitable Miles
Taxpayer Advocacy Services, Inc. President John R. Dundon II
More than simply business miles are covered by the motor cost deduction. You may deduct mileage travelled for both medical and philanthropic reasons. It’s critical to keep track of your mileage for both work and personal reasons, since many personal miles might be reduced.
24. Estimate Your Company’s Cash Flow
Dryrun.com’s CEO, Blaine Bertsch
Create a cash flow projection to predict your tax effect and plan for both your payments and deductions. Not only will predicting your receivables and payables, as well as your budget and sales pipeline, help you flourish and expand your company year after year, but it will also help you thrive and grow your business year after year.
25. Overpaying Tax Estimates
Abby Eisenkraft, EA & CEO, Choice TaxSolutions, Inc.
To prevent interest and penalties, make sure you pay adequate anticipated taxes throughout the year. Many sole owners have trouble remitting quarterly taxes since they come from W-2 employment. They are used to spending their whole salary, oblivious to the fact that the money they get as a self-employed person is not entirely theirs—it also contains their tax money. As a consequence of their failure to budget correctly, many small company owners are unable to pay their tax obligations and are subject to interest and penalties, creating a vicious cycle.
26. Don’t Forget About Initial Investments
Gail Rosen, CPA PC, Wilkin & Guttenplan, P.C., Certified Public Accountants and Consultants
Small firms are sometimes unaware that “startup costs” refer to all expenditures made prior to the first sale. These expenses are not deductible until the first sale, although they may be deducted over a 15-year period. In addition, you have the option of deducting the first $5,000 in your first year in company. Many small companies believe they may deduct all of their startup expenditures, but this is not true until they make their first sale.
27. Electronically submit your tax returns
Crystalynn Shelton, CPA & Staff Writer, Fit Small Business
You should submit it online to ensure that your tax return is received on time. You will save money if you file online instead of mailing your return. As long as you have a tax ID number, most tax software systems, such as TurboTax, enable you to e-file your federal tax return for free. If you need to submit a state tax return, TurboTax will help you with that for a little price.
After the IRS has properly received your tax return, you will get a confirmation number when you e-file. This is a much superior option than mailing your return and then wondering when or if it will be received. If you anticipate a refund, an electronic tax return will almost certainly be handled considerably quicker than a paper tax return.
Conclusion
Making sure you don’t miss out on any qualifying deductions is one of the most significant ways to save money on company taxes. To make filing your tax return simpler, you should be able to keep track of your income and spending throughout the year. Remember to apply the other professional company tax-saving ideas provided above as well.
