A 2018 survey showed that around 30% of small businesses strongly believe that they’re overpaying their taxes, and could have claimed more tax credits and deductions, despite surveys results showing that 93% of small business are confident that they accurately file taxes. While it’s necessary for one to pay taxes accurately and on time, there’s no denying that taxes — much more overpaying in taxes — can eat up a large part of your small business’ income.
So we’ll be exploring ways for your small business to reduce taxes and prevent you from the common pitfalls that result in overpaying taxes:
Use Tax Software
Tax software can be your business’ best friend, especially if you’re not that experienced or well-versed with filing taxes. The IRS has noted that there’s a 21% error rate when filing taxes using paper returns, whereas they have seen less than 1% errors for online tax returns. Tax software can save you time, money, and a huge headache when filing your taxes, so it’s worth investing in one. If you’re not tech-savvy, it’s best to hire a tax professional to do it for you; not only does a tax professional ensure that you’re filing correctly and not overpay, but would also make sure to detect any possible deductions you may have missed — in a way, they’d be able to pay for themselves through deductions and tax reductions.
Deducting Your Home Office
As a business owner, you can technically manage your business from home. As such, there are many in-depth guides on making a legal claim to deduct your home office from your taxes — even if it’s just literally a table and a computer.
Deducting Your Car Expenses
Managing your business takes a lot of travel, perhaps to and from the business site or to suppliers and clients. Make sure that you keep track and calculate the amount or percentage of time you’ve been using your car for your business. You can choose to deduct the mileage rate to your taxes or the actual car expenses such as gas, maintenance and repairs, and insurance, and pick the right one that maximizes your deductibles.
Earning from Charity
Have old equipment you no longer use such as a computer? Don’t throw it away; you’d still be able to make use of it. Giving to qualified non-profit organizations can reduce your taxes as the IRS provides tax incentives for such. Just make sure that you have written acknowledgement from the organizations you’re donating them to.
Hiring Family Members
When you’re operating a small business, chances are, you’re employing people close to you, perhaps even your family members. Luckily, the tax system is quite friendly towards family businesses. When you hire your spouse or parents, you won’t have to pay federal unemployment tax, and you also wouldn’t have to withhold income taxes when your children are working for your business (make sure you don’t go against child labor laws).
Taxes are necessary, but they can make a dent in a small business’ income, so it’s a good idea to apply legal and effective ways to reduce your taxes without sacrificing your business’ operations, quality, and output. Luckily, you can get tax planning help from tax agencies for your business in Utah to professionally assist you in making sure that you don’t pay too much in tax.