As a small business owner, it’s essential for you to explore tax-saving opportunities every year. This can go a long way when it comes to saving money, and you can reinvest these funds into other areas of your company.
Under the right circumstances, you can even begin to scale your company faster than you previously thought was possible.
Let’s explore some of the most efficient forms of tax planning for small businesses that you can take advantage of.
1. Set up an S Corp or LLC
The way in which your business is taxed depends on how it’s structured. For example, as a sole proprietor, your business is technically taxed as an individual, and you’ll be required to pay taxes twice. This occurs once as an individual and again as a small business.
A traditional C Corp, on the other hand, is subject to a corporate tax. This could also involve double taxation as well if the corporation pays dividends to its shareholders.
Instead of paying taxes twice or having a corporate tax, you may want to opt for a business structure that will allow you to pass off your company’s income and expenses directly onto yourself as an individual taxpayer.
This is where S Corps and LLCs become relevant. Simply put, if you own a small business and haven’t yet formed an S Corp or LLC, consider doing so in order to avoid extra taxes for your business.
The main difference between these two is that an LLC gives you more freedom when it comes to the number of owners involved whereas an S Corp requires all shareholders to also be employees of the corporation.
2. Maximize Your Retirement Plan Contributions
If you’re self-employed, it’s even more important for you to save money in an IRA, SEP IRA, or Solo 401(k). Any contributions made while you’re still employed by someone else are done on a pre-tax basis. This means that they don’t count toward your taxable income.
In order to avoid paying more taxes when you file next April, consider increasing your retirement plan contributions now while you can still take advantage of the pre-tax contributions. This is one of the most important small business tax tips to keep in mind.
3. Explore Tax Deductions For Business Expenses
If you’re self-employed, it’s important to take advantage of all available deductions in order to lower your taxable income and save even more money on taxes. Business taxes aren’t cheap, but by taking the time to explore all forms of deductions you can help reduce their overall impact on your company.
For example, you may want to consider investing in new office furniture, equipment, or software. This can go a long way when it comes to reducing your taxable income as a business owner.
Tax Planning For Small Businesses Should Never Be Overlooked
Otherwise, you’ll miss a large number of opportunities that you could take advantage of when it comes to small business tax planning.
Tax planning for small businesses might seem complicated at first, but this guide will help ensure that you stay on the right track. Want to learn more about what we have to offer? Feel free to get in touch with us today and see how we can help.
Learn how Sterling Tax & Accounting can add value to your business!
Your virtual accounting and technology experts providing back office, compliance & strategic solutions for busy professionals.