When operating a small business, each penny counts. So often, reducing the taxes is the difference between making profits and suffering a loss. You have to pay taxes; there’s no argument about it. However, you have to be smart about it lest you risk losing a significant part of your dividends. It normally hurts a small business when you are forced to pay more than you actually owe the taxman. According to a Forbes research, 93% of small business owners overpay taxes. This is because they are mostly not aware of their deductions considering that they play an important role in minimizing taxes. Generally, here are 8 tax-saving tips that the report and others from top financial experts recommend:
- Keep Your Receipts Close
The major problem with most small business owners when it comes to filing their tax returns is that they cannot account for their payments. Often, it’s because of missing receipts. You have to keep all your receipts near you no matter how small the spending looks. Though it may look like a big challenge to keep receipts for an entire year. You should learn to do it if you are looking to save on tax. For starters, you should have a filing system where they are organized based on the date of the transaction. You can also use an app like 1tapreceipts. It allows you to capture and store all your receipts in a digital format.
- Track Your Spending
At times, it may be hard to keep tabs on all receipts but this doesn’t mean that you shouldn’t account for all spending. For example, you have to monitor your online transactions so that they can be reflected in your tax returns. Technology has made it easy to do it hassle-free. You can use a software such as Quicken, Mint or QuickBooks. They allow you to monitor all deductible expenses. They are cheaper than piling up hundreds of receipts. They allow you to attach your credit card details so that you can easily track the expenses. The bonus is that there’s no calculation needed as the apps do everything for you. Your job is to look at the results.
- Beware of Deductions
If you are running a home office, then you should know that it guarantees you some deductions and so you don’t have to be taxed for the expenses. They include mortgage interests, utility bills, and insurance. What’s important here is the ability to distinguish the home expenses that are part of the day-to-day running of your business. The other deductibles that you need to be aware of are auto expenses. You have to know how often your car is used for business and how often it’s used for personal reasons. This will help to only pay for business expenses relating to gas, auto insurance, and maintenance.
- Take Advantage of Family Labor
If your spouse and kids can help you run your business, you should allow them. This amounts to tax-saving. It means that you’ll incur a tax deduction that’s reasonable when compensating them and in the long run, the money stays within the family. It’s fulfilling to know that you are not paying an outsider but a member of your household. This strategy may also save you from paying FUTA, FICA, and other similar taxes. It’s also a great way to encourage family involvement in your business. They’ll be able to understand the value of each dollar that the business makes.
- Start Paying for Retirement Now
The good thing about saving up for retirement early is that the money is not taxed by the taxman until you decide to withdraw it. If your earnings are under 50, you can save about $5,500 in your IRA and if they are above 50, then you can save $6,500 or more. But still, it’s important to talk to a financial advisor about it so that you can be directed on the figure that matches your financials. Of course, this is a tax-saving strategy that not only pays up now but later too. Additionally, saving up towards an IRA plan allows you to combine it with a 401(K) plan and still be exempted from taxation.
- Establish Quarterly Estimates
The simplest way not to forget to file your returns is to make quarterly estimates. This ensures that you are able to pay in time and so you don’t have to suffer any penalty. You’ll have to make the payments in installments depending on how your small business performs throughout the year. Other than risking a hefty tax penalty, failure to follow this approach may also mean having to deal with a big tax bill at the end of the financial year. You should, therefore, sit down with your accountant or financial advisor to establish the quarterly estimates that work for you. You’ll be surprised by how easy it is to make the payments.
- Seek Penalty Relief
There are several tax penalties that are eligible for relief. They include late tax filing or failure to pay up because of a convincing reason. You need to check if you are eligible for the relief as this may save you from suffering over taxation. There’s usually a criterion that the taxman uses to decide who is eligible for tax relief and who isn’t. For example, you may be considered if you followed all the legal requirements but was unable to beat the deadline because of a logical reason. Simply, it has to be an honest mistake for you to enjoy a tax penalty relief.
- Use Tax Software
Where the world economy is, there’s almost a software for everything. In the tax filing world, there are amazing applications like TaxSlayer and TurboTax that you can use to plan for your tax filing. They allow you to file the returns online accurately. Thus, you don’t have to suffer the headache of manual tax filing. The software will also guarantee you refunds in case of extra charges that you may have paid. The good thing is that they are DIY and so you don’t need the help of a tax preparer to file your returns. They are just incredible.
Surely, you don’t have to allow taxes to drain you financially when there are things you can do about it. As seen above, you have to be careful with your accounting so as to only pay for what is necessary. You also have to possess an investigative eye so as you can identify the pitfalls that are robbing your business profits.