As a new small business owner, there are plenty of tax saving opportunities designed specifically for you.
No small business owner should have to scramble at the tax deadline for ways to lower their tax bill.
There are hundreds of different ways to save on taxes that vary on your size, industry and tax classification. But there are three things every small business owner can do regardless of those things: create a tax strategy, maximize deductions and credits, and hire a CPA.
There’s nothing wrong with looking for last-minute ways to save on your taxes. It just shouldn’t be your only strategy. The most impactful tax moves — like opening a retirement or healthcare plan for your business — shouldn’t happen at year-end. They should be happening all year long.
Talk to one of our team members today about implementing these three moves below that any small business owner can make.
Create a tax strategy
Tax planning can help put an end to your stressful tax seasons. It can help you make informed decisions on your big purchases so you don’t have to wonder how much it will cost you in taxes. It gives you the freedom of knowing what your tax bill will look like instead of anxiously waiting to find out if you can afford it.
So what is tax planning? It consists of these, among a lot of other things:
- Timing out your purchases and your cash flow to pay the least amount of taxes
- Opening health care or retirement plans
- Deciding to buy or lease vehicles
- Structuring your business
When you’re a business owner, it’s not enough to think about your taxes only once a year. Your next tax bill might be higher just because you bought something on Jan. 1 instead of Dec. 31. It may be best to delay a certain purchase — or not make it at all.
Tax planning can also involve timing when you actually pay your taxes. Most business owners are required by the IRS to pay quarterly estimated taxes, which are tax payments made throughout the year. But depending on your cash flow, it may be best to take the penalties and pay your taxes once a year like non-business owners do.
Every business owner’s situation is different — and no two plans will look exactly alike. It’s still important to have an effective plan in place and review it with a tax professional.
Take full advantage of deductions and credits
This may seem like an obvious one, but many business owners don’t deduct nearly as much as they should. They write off many of the obvious business expenses like office supplies and rent. But in reality, you should be writing off a lot of other expenses, too — even if you buy them with your personal card. Here’s a simple rule of thumb to keep in mind:
Write off any expenses you incurred while eating, drinking, sleeping, or thinking about your business.
Of course, there are caveats and exceptions to that. You can’t fully deduct purely personal expenses like plane tickets for your family. But if you use your phone to check your email or call an Uber to get to the office, those expenses are deductible.
Knowing the basic deduction and credit rules ahead of tax season should influence many of your financial decisions. For example, restaurant meals are fully deductible (until 2023) and other meals are only 50 percent deductible. So if you’re going to eat with a client or employee regardless, it may be a smarter tax move to do so at a restaurant. Take-out and delivery services from restaurants also count for a full deduction.
Your tax strategy should also involve making tax credits when you can. Credits can help lower your tax bill significantly more than deductions can. You can receive credits for hiring a certain amount of employees, setting up employee retirement or healthcare, using certain cars and more — so find out which tax credits and deductions you qualify for ahead of time for the most savings.
Maintaining clean and accurate books is an important part of maximizing your credits and deductions. You can’t write off expenses if you can’t keep track of them. You can do this with the right accounting software or payroll software. Or you can hire a bookkeeper to take care of that maintenance for you.
Hire a CPA
Investing in a Certified Public Accountant (CPA) could save you money in many cases. Are business owners required to hire a CPA? No — but investing in one can help you create a long-term tax plan and take advantage of tax deductions and credits you might not be aware of. Hiring a tax firm is an even better choice, since you’ll likely also have access to bookkeeping and accounting services that will help make your tax season even easier.
A CPA can be especially helpful for first-time business owners completing their tax return for the first time. You don’t know what you don’t know — but a CPA probably does. And an accurate tax return, balance sheet and other financial statements are more important than you think. If you want to sign a new office lease or get a business loan, you’ll often need to show that information to lenders. CPAs or other tax experts can help you organize your information correctly and in a way that will boost your chances of getting approved.
CPAs and tax firms can also help you find the best way to structure your business in a way that will save you the most in taxes. For example, they might advise you to register as an LLC taxed as an S corp instead of an LLC without a tax election to help you save on self-employment taxes.
By filing your tax return for you, they can also help you save. Business owners’ tax returns are confusing, especially if you’re filing it for the first time. Using a software like TurboTax might sound like the easiest and most convenient option — and in some ways, it is. However, having an expert by your side to complete your tax return can help you save and give you more time to focus on the parts of your business that you love.
The bottom line
Every small business owner wants to know how they can save on their future tax bills. Although the answer looks different for everyone, creating a tax plan, maximizing deductions and credits, and hiring a CPA apply across the board.
If you’re winging it every tax season without a concrete tax plan, then you’re probably not saving as much as you can. Regardless of your industry, business and situation, you shouldn’t be thinking about your business’ taxes only once a year. Having a plan in place and an expert by your side helps you avoid a surprise tax bill and allows you to run your business with peace of mind.
Want to create your tax plan and run your business without the fear of a big tax bill looming over you? Schedule a free introductory call with a member of our team to learn more about how you can save.