Tax obligations will always be there as long as you’re running a business, whether it is a small scale business or a large scale business. There are different types of business taxes such as sales taxes, employment taxes, excise taxes, income taxes among others. It’s your responsibility as an entreprenuer to know how to pay your tax bills. It’s important as a business person that you review your taxes to know whether you are reducing or maximizing the deduction. Here are some of the ways that you can use as a small business owner to reduce your tax bill.
1. Have A Disregarded Entity
A disregarded entity is one of the best ways to reduce tax bill as a business owner. Disregarded entities are separate businesses for business owners that are created mainly for tax purposes. Entrepreneurs who have disregarded entities don’t have to worry about cooperate taxes because they pay taxes at a personal level. A good example of a disregarded entity is the limited liability companies. A limited liability company is protected from liabilities that is in case a business owner has debts the creditor does not have the right to the assets of the LLC. Also, a business owner with a limited liability company gets to avoid double taxation as well as enjoy easy tax filing.
2. Have A Retirement Plan
As an entrepreneur whose aim is to limit tax deductions contributing to a retirement plan is a good idea. A retirement plan will help you save some money because the plan will provide you with a tax deduction for the contributions. You can also agree with your employees and get them a retirement plan thus helping you to save more of your business income. Also, you can seek professional help from a financial planner who will help you choose the best retirement saving plan. However, for you to have to meet the requirements for taking a retirement plan and one of the requirements is the age.
3. Contribute To A Charity Organization
Donating to charity is another way to reduce your tax bills and grow your business. Contributing to charitable organizations is also a good way to help you support your community. When contributing to a charity organization as a small business owner, you can reduce the tax bills because the government will give you a tax deduction equal to the donation. Hence the more you offer donations to charitable organizations the more you save on taxable income. However, you have to make contributions to a charitable organization that is qualified and is recognized by the government.
4. Pay Your Bills Early
Paying your bills as well as your state taxes early can help you limit tax liability. For example, you decide to make payments for most of your January expenses in December. Also as a business owner ensure that you pay your local and state taxes early. Reducing your bills is easy to cut down on cost used when paying taxes. Also ensure that you keep track of carryovers such as general business credit, charitable contribution deductions, net operating losses, capital losses as well as home office deductions. The reason why you should keep track of carryovers is that certain deductions have limitations that can limit you from using them in currently but could allow you to carry over in the future.
5. Have An Accountable Plan
It is advisable that as an employer you create accountable plans to help you cut down on payroll taxes. Accountable plans like reimbursing employees are good when it comes to limiting tax liabilities. You can decide to reimburse your staff for entertainment, travel, gifts, car expenses among others. The reimbursements are not considered as income thus saving on employment taxes and reducing the company’s tax bills. Employees love reimbursements; thus as an employer, you should not deny them because it is the best way to reduce the tax obligations. Also, the reimbursements help the employees to save on the money they use to pay taxes.
As a business owner or an entrepreneur, all you want is to make more profit and ensure your business growing. With a huge tax liability making an extra profit seems hard; however, by using these ways, you can limit your tax liabilities and run your business smoothly.
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