Are you doing everything you can to minimize your tax liability? These seven tips can help you spot tax-saving opportunities for your business.
1. Think About Your Taxes Year Round
“Many people mistakenly think that your taxes are your taxes, and there’s nothing you can do about them,” says Karla Dennis, Specialist in Small Business Tax Accounting at Karla Dennis and Associates. But there’s a lot you can do to reduce your tax bill, starting with working on your taxes year round. “January through April is what we call tax compliance season. That’s when your tax professional is putting together your tax return — dotting the i’s and crossing the t’s. May through December is an opportunity to really plan out your tax bill,” she explains. Keeping detailed records of income and expenditures, understanding the deductions to which your business is entitled, and making note of the following tips can help you ensure you’re not paying too much in taxes.
2. Evaluate How Your Business is Organized
“Most of us create our business entities and never go back to see if this is the best way to be running our business today,” says Dennis. Restructuring could provide significant tax savings, particularly because tax reform changed how different entities are taxed. C corporations now face a flat 21 percent income tax. Pass-through entities, on the other hand, still pay tax at the individual income tax rate but can use a 20 percent deduction to help reduce their qualified business income. As with all tax law, there are rules around how this deduction is calculated.
3. Take Advantage of the Small Business Health Care Tax Credit
Businesses that have fewer than 25 full-time equivalent employees, pay an average wage below a certain amount, and pay at least half of employee health insurance premiums may be able to take advantage of the Small Business Health Care Tax Credit. “As part of the Affordable Care Act, this tax credit enables qualifying small businesses to get a tax credit for premiums paid on behalf of employees,” explains Mike Trabold, Director of Compliance Risk at Paychex®. For more information, visit the IRS website’s Small Business Health Care Tax Credit questions and answers page.
4. Choose the Right Retirement Plan
Trabold suggests looking into the benefits of starting a retirement plan. “Small businesses that start a new 401(k) plan can claim a federal tax credit for the first three years of the plan to offset plan startup costs, as well as take advantage of other tax benefits,” he says. Choosing the right plan for your business takes time and research. Visit the IRS website for more information on choosing a retirement plan solution.
5. Use Depreciation Deductions
If you purchased assets for your business, the Tax Cut and Jobs Act updated rules around claiming deductions. For purchases made in 2018 or later, the bonus depreciation is 100 percent. Additionally, the maximum deduction amount is higher than in previous years.
6. Ensure You’re Not Missing Write-off Opportunities
Many business owners are leaving tax money on the table, says Dennis. “I find we don’t spend enough time investigating what can be a tax write-off. We make that judgment ourselves as opposed to meeting with a professional and asking,” she says. “There are a lot of simple things on a tax return that we can miss.”
For example, even if your cellphone is being used for personal and professional use, it may qualify for a partial tax write-off, she notes.
7. Stay on Top of small Business Tax Rules
A number of the provisions in the Tax Cut and Jobs Act, including many that apply to small businesses, expire in five to 10 years. However, Congress may pass extenders. Keep an eye out for any extensions (or expirations). By thinking about your taxes year round, doing your homework, and seeking professional guidance when necessary, you can find significant tax breaks and improve your business’s bottom line.
