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3 Tax Reduction Strategies Every Business Owner Should Know

Guest Post | Jan 24, 2022

small business tax deductions - 3 Tax Reduction Strategies Every Business Owner Should Know

“Small-business tax deductions” is one of the sweetest things for small-business entrepreneurs.

However, most business owners are either unaware of all the small-enterprise tax deductions available to them or don’t take the time to keep accurate records, itemize expenses, or calculate the figures required to take advantage of these deductions.

If you own a company, tax season can present you with a whole new set of tax-related issues. Fortunately, various tax filing options can help a business owner optimize credits and deductions.

Because tax season can sneak up on small company owners, it’s never too early to start planning. Here are some tax preparation strategies to help you keep on track.

You can find better strategies to manage filing taxes than allowing receipts and financial documents to pile up throughout the year with a paystub portal. The tax planning process for most company owners is determining federal, state, and local responsibilities and ensuring that money is available to meet those commitments. Standard business tax planning techniques are to take steps to maximize possible tax credits and ensure deadlines are followed to prevent fines.

Claim Deductions for Your Startups

As a single owner, you must fill out a Schedule C tax form to collect small-business tax deductions. The Schedule C form has been used to calculate your firm’s taxable profit for the tax year. The gain is then reported on your personal 1040 form, and the taxes due are calculated from there.

If you need help filing your taxes, several accounting businesses may connect you with a tax professional who can assist you. Bench members, for example, can work with a bookkeeper to perform financial statements. You can also switch to Bench Tax if you want to file your taxes ultimately. A form called 1099 pay stub for independent contractors can be generated to initiate the process.

For a small business owner, taxes can be a source of anxiety. You probably wear a lot of hats, and the last thing you need is to give the state more of your demanding business profits.

Consider some of the options listed below if you need to minimize your taxable income this year.

1. Tax planning with Devaluation

Equipment depreciation provides tremendous flexibility in taxable revenue for small firms because of the vast range of depreciation alternatives available. You may be able to:

Prepare a multi-year budget for equipment purchases.

This budget should be coordinated with your year-end tax planning. The benefits of the Section 179 asset expensing election may make it right to accelerate the acquisition of some or all of next year’s assets into this year in a year with more significant income. Alternatively, if earnings are predicted to be higher next year, it may be prudent to postpone further additions this year till next year.

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Learn how to calculate mid-quarter depreciation. Your first-year depreciation is recalculated and likely lowered if more than 40% of your additions are put into service in the last quarter of the year. As a result, a budget that anticipates significant growth in the fourth quarter may need to be advanced by a few months.

Make sure your depreciation schedule is in order. Remove retirement assets each year to lower your property tax bill.

2. Increase the capitalization limit.

Set a high limit on how much money can be spent on an asset before being classified as fixed. As a result, a more significant amount of current-period expenditures is recognized as expenses. If the capitalization limit is set at $2,500, for example, all laptop computers will almost certainly be charged a fee when purchased, as their cost is frequently less than this amount. A variation on this idea is to buy below-the-threshold assets early enough to recognize the expense in the current year.

Calculate depreciation for tax purposes using an accelerated depreciation approach, which increases the amount of taxable depreciation and amortization in the current period. For financial statements, a less aggressive strategy can still be utilized.

There may be times when it is advantageous to acquire assets earlier than is strictly necessary. Consider replacing a fixed asset with both the latest-and-greatest assets if it no longer has a comparable efficiency level or breaks down regularly. Not only would this increase depreciation expense, but it may also give the company a competitive advantage.

3. You can hire members of your family to work for you.

You can add tax savings to the benefits if you have family members who can assist with duties critical to your business, such as a teenager who can help mow lawns as part of your lawn care firm.

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Hiring a family member allows you to take a company deduction for appropriate payments made to that individual (reducing your taxable income) and avoid paying taxes like FICA and FUTA.

Final Thoughts

As a small business owner, you may lower your taxable income and keep more money flowing for you by planning. Just make sure to check with a tax professional to see if you qualify for the savings mentioned here.


NCFA Jan 2018 resize - 3 Tax Reduction Strategies Every Business Owner Should Know The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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