Business owners are always looking for ways they can reduce their tax liabilities. Even when business profits are soaring, taxes can be your largest business expense. There are basic strategies available to help reduce the amount of taxes business owners need to pay. Reduce your taxes by looking for tax credits and deductions, defer taxes in a retirement plan, and …
Look for Tax Credits and Deductions
Tax credits are the federal government’s way of encouraging businesses and individuals to do certain things that affect the greater good. You can earn tax credits for hiring employees, implementing environmentally friendly practices, and so much more. Deductions are business expenses that you can deduct from your total income. Business expenses that qualify for deduction include transportation, depreciation of equipment, insurance, rent, taxes, and so much more. If the expense is commonly accepted and necessary in your industry, it is likely tax deductible. Keep track of what actions you make that can qualify for a tax credit or deducted from your taxable income.
Defer Taxes in a Retirement Plan
Setting up a retirement plan for yourself or your employees can help you save money on taxes. A qualified plan must be recognized by the IRA to allow the deferment of taxes on your earnings. Your earnings will be taxed, it is just a matter of when you take the money out of your retirement account. Different plans approved by the IRS offer different benefits. For example, cash balance plans allow you to save even more money compared to a 401(k) plan. Speak with your financial advisor to see what the best plan is for you and your business.
Save for Healthcare
Putting money aside for healthcare needs is one of the best ways small businesses can save on taxes. As you age your medical needs and associated costs will also increase. Establishing a Health Savings Account (HSA) will protect you with future medical costs. An HSA reduces taxes in three ways: contributions made are pre-tax, your investment grows tax-free, and any withdrawals for medical expenses are tax-free.
Before you make any final decisions regarding tax reduction, check with a qualified tax advisor. Your advisor will know the unique needs of your business and how you qualify for different tax reductions. Taxes are an expensive part of doing business, don’t make it more expensive than it has to be by overpaying for taxes.
Check out this article on how to protect your business assets!