21% of paper tax returns have errors, and these cost businesses more than they hope to save. One of the tax saving tips you must always remember is to file your returns correctly. Every penny counts when it comes to business taxes.
How you file your taxes could spell the difference between having a profitable business and merely getting by. You probably don’t have that much time to prepare your returns. That’s why we’re putting up these tax saving tips for you.
They’ll not only save you money but your time as well. Read along to learn how you can do away with the stress of business taxes.
1. Make Use of Tax Software
One of the tax saving tips you can’t ignore is the use of tax planning software. You’ll be able to find a variety of reliable tax software to make your filing easier. Once you ditch paper returns, you'll make fewer errors in your tax accounting.
If you’re not familiar with how to use tax software, hire a professional to help you out. This may seem like an extra cost to your company, but you’ll save more in the long run.
2. Closely Monitor all Receipts
Receipts are the financial dashboard of your business expenditure throughout the year. Most of the receipts are for goods and services deductible on your taxes. They contribute towards offsetting your taxable income.
Keeping receipts for the whole year can be quite a hassle as most papers can easily get misplaced. You can use apps that help you capture, organize, and store all your receipts in a convenient place. The apps enable you to import receipts from sources like photos and forward them to safe storage like your inbox.
Most of these apps rely on artificial and machine learning intelligence to extract line items from the receipts. In so doing, you can obtain proof of every expense deduction owed to you and retain the evidence. The good thing is that these apps, in most cases, sync effortlessly with most tax-filing software.
3. Don’t Ignore Accountable Plans
An accountable plan refers to an arrangement that caters for expense reimbursement or allowances issued. It helps employers substantiate expenses like travel, tools, and entertainment reimbursements given to employees. With the plan, a business avoids reporting compensation as an income to the employees.
This goes a long way in saving the company employment taxes, hence lowering the overall taxable income. If your company doesn’t have an accountable plan in place, employees will likely ask for it. This is because, under the tax law, they can't deduct miscellaneous unreimbursed expenses.
As you can see an accountable plan is a win-win for the company and employees.
4. Pay Off Retirement Accounts First
Businesses and self-employed people have many retirement plans to cater to besides other expenses. They, therefore, have access to a traditional IRA, which caps at $5,500 annually. This type of IRA can be set up together with other retirement plans like SEP IRA or 401(K).
SEP IRA refers to a Simplified Employee Pension. It allows small businesses and self-employed employees to save up to $56,000 annually toward retirement. 401K is another retirement plan that lets employees save a part of their paycheck before tax deductions.
The employer sponsors the 401k retirement plan. Let your financial advisor guide on the program that makes the most sense for your business structure.
Also, consider investing in Opportunity Zones, which are a great alternative to 1031 exchange. This allows you to qualify for tax cut opportunities by investing in distressed communities in the country.
5. Factor in Your Auto Expenses
In case you didn’t know, you can deduct the expenses on your auto when used for business. Calculate your car’s mileage attributable to your business. Regardless of the figure, apply that percentage to your auto expenses for the year.
Tracing all these numbers will take much of your time, but could save you lots of dollars annually. Remember that there are apps that can help with tracking.
6. Deduct Your Home Office
If your small business operates from a home office, there's more to your tax saving tips. You can deduct expenses related to that office including mortgage interest payments, insurance, utilities, and repairs.
Before you do so, you have to determine the portion of your home that serves the business. If using the tax software, it can quickly calculate this for you. This deduction will benefit both homeowners and renters.
7. Consider Your Employee’s Fringe Benefits
Tax costs for a business increase with additional wages. An employer can avoid the extra tax costs by paying certain fringe benefits for employees. Such benefits include
- Long-term care insurance
- Health benefits
- Disability insurance
- Group term life insurance
- Dependent care assistance
- Transportation benefits
You can read more about these benefits in the IRS Publication 15-B.
8. Register Your Business as an LLC
Many small business owners don’t know that they can benefit from registering as an LLC. This goes a long way in eliminating some of the self-employment taxes. Being an LLC also provides other tax benefits according to the new tax law.
9. File Your Returns on Time
One thing that can increase the amount of your taxes is the penalty that comes with lateness. The penalties depend on the business structure. For example, partnerships are penalized depending on the number of partners.
C corporations attract a late filing penalty and late payment on any tax due. S corporations are subject to the late filing penalty depending on the number of shareholders. The penalties can cost your business a lot of money.
10. Give Out Unused Inventory
If you have inventory your business isn’t using, donate it instead of spending money on storage. Donations given out by companies are considered tax deductible. These include supplies, money, and property.
However, take note that donations above $500 in value have strict reporting rules.
Tax Saving Tips - Take Away
Taxes are an essential component of running a business. You need to familiarize with all the taxes payable, and when they’re due. Planning can help you file on time and claim the necessary deductions.
Besides, there are tax saving tips you can use to save some money on your taxes. Consider using tax planning software when filing your taxes. It’s also necessary that you’re aware of all the expenses you can claim.
These include auto expenses, home office, and fringe benefits to employees. Always monitor your business receipts as they are another source of money you could save on taxes. After putting your records in order, remember to file your taxes on time.
Lateness can attract a hefty penalty that can cost you all the money you hope to save. Having a professional bookkeeper can save you from this headache.
For more information, check out our resources section.