Tax season is stressful for small business owners, especially if you’re filing taxes for the first time. You likely have many questions about what tax deductions you can claim. After all, if there’s a way to keep more of the money you worked so hard to earn, wouldn’t you want to know how to save on taxes? Here are four tax-saving strategies you need to start implementing today.
1. Hire a CPA
If you don’t already have a certified public accountant, you need to hire one. They will handle everything from bookkeeping to financial planning to tax filing.
Not only will this take a lot off your plate, but it will save your company time and money. Paying taxes is bad enough; you certainly don’t want to overpay!
To avoid tax filing mistakes that could cost you money and potentially lead to an IRS audit, work with a financial advisor like MI Tax CPA. They’ll ensure you file your taxes correctly and take advantage of any tax deductions.
2. Hire Family Members
Many business owners don’t know this, but they can reduce their taxes by hiring a family member. For example, if they hire their child, they’ll get a lower marginal rate. Sometimes the tax is eliminated completely.
Just be sure the income is justifiable for business purposes. Hiring your spouse would also reduce taxes because the earnings won’t be subject to the Federal Unemployment Tax Act (FUTA).
3. Deduct Travel Expenses
Business travel is entirely deductible. You could use it to cover expenses involved when traveling by plane, bus, train, or your vehicle if you used it for company purposes.
Unsure if your trip qualifies as a “business trip”? The IRS requires the primary purpose of the travel to be business-related for it to count toward business travel.
Examples of travel deductions you can claim include:
- Airplane, bus, or train tickets
- Baggage fees
- 50% of eligible business meals
- Housing costs
- Car rental costs
Make sure you save documentation of all travel expenses in the case of an audit. Your financial advisor will be able to walk you through the process of deducting travel expenses when it’s time to file your taxes.
4. Consider Rent and Utility Expenses
Keep track of all business-related expenses like the rent you pay for your workspace or utilities like high-speed internet. These are monthly expenses that add up to quite a bit each year.
As long as these rent and utility expenses are directly running your company, you can account for them to reduce taxable income when filing.
As a small business owner, you may even be able to write off the cost of your vehicle if you use it for business purposes. However, if you use it equally for business and personal purposes, you can deduct 50% of the expenses.
Final Thoughts
Business owners can reduce their taxable income through careful planning. It all starts with finding a CPA to help manage finances, understanding what’s considered taxable income, and taking advantage of these four tax-saving strategies!
