Smart Tax-Saving Tips for Small Business Owners

(Credit: pixabay) Smart Tax-Saving Tips for Small Business Owners
February 24
5:45 PM 2020

Small businesses are quite expensive to run. They need every possible advantage to remain profitable because, unlike the more prominent competitors, they have a limited market share, and their businesses often run on minimal margins. One of the most significant issues facing small businesses is paying more taxes than necessary. To prevent this and realize more profits annually, here are 5 tax-saving tips.

1.    Use tax filing applications.

Tax filing software has been in the market for a while now, and most businesses now use them. Not only do they make the filing process more manageable, but they also ensure that you don't make avoidable mistakes. This way, you can file with maximum accuracy so that you are guaranteed the refund you deserve. They help you to make the right calculations so that you don't pay more than you need to. Income tax calculators such as Taxfyle can help. 

2.    Track your spending

Keeping track of your spending is essential more so for tax purposes. While most business owners know how to prepare their profits and loss statements, they often do not understand that some of the items they bought can be used as deductibles later on when filing returns. If you purchase business products from the same account, reconciliation should be easy enough as banks send over complete statements of money coming in and out of the accounts. If you are unsure, use software such as QuickBooks to keep track of every cent. These deductibles can lower your gross income, which will reduce the amount of taxes to be paid.

3.    Don't ignore your retirement accounts.

Self-employed people often have the biggest ideas about their retirement. To finance these plans, you need to put away as much as you can by the time you want to retire. Here you can work with a traditional IRA, which is capped at $5,500 per year. You can combine it with a retirement plan like the SEP-IRA or 401(k). By furnishing these retirement accounts first, you significantly lower your taxable income, thus saving money, which can be used for something else.

4.    Home office deductions

Small business owners, many of the time, use their homes as their offices to save space and money renting a formal office. What many business owners do not realize is that you can get a home office deduction from your taxes but tend to be afraid of it, citing undue scrutiny at their taxes. Although some businesses do qualify for this sort of deduction, they end up ignoring it and thereby paying thousands of dollars more than they should have been paying.

5.    Carryover tax deductions

Keeping track of your tax deductions from the previous year can be very difficult more so because the numbers have to be exact and accurate. These are deductions for items such as net operating losses, capital losses, large charitable donations, and even home office deductions. 

By taking heed of these tips, you ensure that your business only pays what's necessary and that taxes don't eat into your profits!

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