Did you know that there are 30.7 million small businesses in the U.S? However, the pandemic caused most of these businesses to close down. Surviving small business owners who are already out of cash have to face the burden of taxes.
Fortunately, there’s a way around business taxes. Read on to find out how to save money on taxes today!
Save Money on Tax by Deducting Startup Costs
Most startup businesses don’t know this, but the IRS has a tax deduction policy on startup costs. As per the policy, startups can get up to a $5,000 tax deduction so long as the startup costs don’t exceed $50,000.
The policy also doesn’t cover start-up businesses that haven’t opened their doors. Specifically, there are three categories that your startup business can be eligible for:
Costs of Investigating and Creating Your Small Business
This category covers expenses that you incurred while researching your business niche. It also covers any costs you incurred from opening or taking over an existing business.
This can be your expenses from conducting market surveys and researching products. Even travel expenses from locating a supplier or visiting a location are eligible.
Costs Incurred From Opening Your Doors
Deductions from this category mainly focus on the expenses of certain tasks you took to start your business operation. This includes consulting expenses, advertising, and marketing costs, and even employee training costs. However, this category doesn’t include equipment costs.
If you plan to turn your small business into a partnership or corporation, you can save money through this deductible tax category. This covers expenses that you incurred from turning your business into an organization.
This includes filing and accounting fees, legal fees, and state organization fees. You can also include the cost of organizational meetings. Note that you must incorporate your small business within its first year for it to be eligible.
Reduce Income Tax With Bad Debts and Loans
Did you lend your employee money and never get it back? Perhaps you have clients who ordered a bulk of your product and didn’t pay for it?
If so, review and list them down as “bad debts.” This way, the IRS can factor them in and get you a deduction on your business income tax. However, you do need to provide evidence that these are business debts to qualify.
Similarly, small business loans can also help you save on small business taxes. So long as you borrowed from a legal lender and used the money to run your business. Then, you can deduct the interest you’ll be paying for your loan from your income and reduce your tax.
How to Save Money on Taxes: Qualified Business Income
If you want to keep paying fewer taxes, it’s time to get to know your tax code. Specifically, dwell on the qualified business income deduction (QBI). QBI allows eligible small business owners to get a tax deduction of up to 20% on their taxes.
Who are eligible to get a qualified business income deduction? These will be small business owners who have a total taxable income of not more than $164,900 for single filers. For joint filers, it shouldn’t be more than $329,800.
Set-Up a Retirement Plan
Instead of seeing a retirement plan as an extra expense, look at it as an opportunity to save on taxes. The federal law allows businesses to get tax credits when they start a retirement plan.
This tax credit is for small businesses with not more than 100 employees. Eligible employers can get up to $5,000 on tax credit for the costs of starting a qualified plan.
Deduct the Cost of Gifts
Giving customers gifts is a common strategy that small businesses use to attract and keep customers. Yet this strategy can be quite costly and detrimental to the growth of your business income. Fortunately, under federal law, small business owners can deduct the cost of customer and vendor gifts from their business income.
Employ a Family Member
Saving on taxes would be easy if you hire a family member. For instance, you can deduct their salaries as a business expense on your business income if you hire your children. Further, if the child is below 18 years old, you won’t need to pay for social security and Medicare taxes.
The IRS also allows small business owners to hire their spouses to reduce their taxes. This is because the spouse isn’t subject to the FUTA tax.
Take note that these tax rules are only applicable if the hired family members do bona fide work. The wage paid should also be reasonable for the skill level of the employee.
Apply for Tax Credits
Various scenarios are eligible for tax credits that you can take advantage of. For instance, you can get disabled access tax credits. This is if your business establishment has features that accommodate persons with disabilities.
Another scenario that can get you tax credit is when you shift to an environmentally friendly operation. For example, making your business equipment more energy-efficient can get you tax credits. You may also get tax deductions as a reward for “going green.”
The Business Energy Tax Investment Credit, for instance, gives credit to businesses that use green energy. This includes wind energy, fuel cells, and solar energy.
Talk to a Tax Professional
There’s no better person to ask how to save money on taxes than a tax professional. As such, we recommend getting in touch with one if you want to learn tax tips and tricks that can save you money.
Don’t have a clue where to find a reliable tax professional? Then, Taxfyle might be what you’re looking for!
Taxfyle provides outsourced tax services for businesses, big or small. Outsourcing in Taxfyle gives you access to experienced professionals who have deep knowledge of tax policy. With their help, you’ll be able to determine and apply for every tax credit that your business is eligible for.
Discover More Today!
Congratulations! You now know how to save money on taxes. Make sure to give these tips a try to help boost your small business’ income this year!
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