Tax Planning Strategies for Small Business Owners

As a small business owner, you might not be meeting the same revenue and income goals as larger businesses. Looking for ways to save money is wise no matter your financial situation, and the right tax strategies can do just that. 

Learn small business tax planning strategies that could save you money and make tax season a bit easier for your business. 

Keep Detailed Records of All Income and Expenses 

Keeping detailed records can be helpful for a range of business processes. Doing so gives you clear evidence to refer to when you need to double-check transactions or service delivery. But maintaining detailed records of all income and expenses is especially important for tax purposes. 

Expense records may include invoices, receipts, and other documentation that show money leaving your company. Tracking every penny you spend can help you maximize your deductions, potentially saving you money on tax returns. 

Meanwhile, monitoring income and keeping corresponding documentation is also important for filing your taxes correctly. Failing to accurately report small business income can lead the IRS to flag your business for an audit. 

Maximize Business Deductions To Reduce Taxable Income

Small business tax planning also involves being aware of all of the tax deductions you can take and claiming them on your tax returns. Deductions are expenses that you can write off, lowering your taxable income by that amount. 

A few common deductions for small business owners include:

• Office rent or lease costs
• Business insurance premiums
• Utilities (water, electricity, internet)
• Marketing and advertising expenses
• Office supplies and equipment
• Certain employee expenses and health benefits
• Retirement contributions
• Travel and meal expenses

Not all of these deductions apply to every business owner. Working with a tax professional can help you maximize deductions without risking errors that lead to penalties. 

Explore Tax Credits and Use Them to Your Advantage

Tax credits are dollar-for-dollar reductions of your business’s tax liability. Claiming tax credits is another small business tax planning strategy that can help you save money on tax returns. 

A tax professional can help you maximize tax credits as part of your small business tax strategy. Here are a few credits small businesses often qualify for:

• Work Opportunity Tax Credit (WOTC): A credit for employers who hire and retain workers in certain target groups, such as veterans, ex-felons, and those with long-term unemployment
• Small Business Health Care Tax Credit: A credit available to certain businesses with fewer than 25 full-time-equivalent employees to cover at least 50% of healthcare premiums paid by the employer
• Disabled Access Tax Credit: A credit that helps cover the costs of making your business premises accessible to people with disabilities
• Research and Development (R&D) Tax Credit: A credit that encourages businesses to invest in creating new processes or products, worth up to $500,000 per year against payroll taxes

Many tax credits have expiration dates, so be sure to check a credit’s current status to maintain tax compliance. 

Structure Your Business Strategically for Tax Purposes 

Your business’s entity structure impacts your tax liability. Each entity structure reports taxes differently. For example, C corporations are subject to “double taxation,” while sole proprietorships must pay self-employment tax through Form 1040 and Schedule C. 

Taking the time to consider the pros and cons of different entity structures, including sole proprietorships, partnerships, LLCs, S-Corps, and more, can help you make strategic decisions for tax purposes and other elements of financial planning. 

Seek Tax Help From Levy & Associates, Inc. 

The right small business tax planning strategies can reduce your tax liability significantly. Levy & Associates, Inc. helps small business owners like you approach tax filing, cash flow management, and year-end planning strategically. 

Call 800-829-5389 or fill out our contact form to request a consultation.