Today we are going to look at tax for a small business. In the previous lesson we talked about how to create a professional business plan for a small business – your small business. We are making progress.
Every business owner including small business owners worry about paying taxes and they are always on the lookout for ways to reduce their tax burden. As a small business owner, you must keep your knowledge up to date on tax laws that border on small “businesses.” You also need to understand clearly accounting system and tax planning.
Sit down with your accountant to plan the different ways you will handle business expenses, “tax saving” investments, file receipts, and set a strategy for running your small business in the most profitable way. That would be the best place to start.
Did you know that?
- By hiring family members to work in your business, you can reduce your tax liability says the law. Pay your spouse and children to perform assigned duties. By so doing, you can shift from higher tax rates to lower ones.
- You will save considerably on payroll taxes if you hire independent contractors instead of employees.
- You may take advantage of allowed tax deductions for charitable donations. Make your donations in November or December rather than January so that the donation can be included in the current year for tax deductions.
- Your expenditure on equipment and office supplies can be maximized. Buy for a quarter in advance and utilize the tax deductions allowed in the current fiscal year.
- If you settle all your bills due before the end of the year, Payment for rent, insurance, cell services and utilities related to the business can be included for applicable tax waivers and accounting.
- By setting up plan for retirement and making payments before the year ends. This reduces your income for the year and proportionately the tax due. Plan a beneficial and feasible strategy with your accountant.
- Deduct from your income money paid to business taxes, licensing fees, and annual memberships to business related organizations. Don’t forget to deduct the interest paid on borrowing that is used for running the business and related fees. Also eligible for tax deductions are insurance premiums paid to insure the business office and machinery.
- Check to see if you have deducted management and administration expenses as well as money expedited on maintenance and repairs of equipment.
Tax deductions are different depending on whether you use the cash accounting system or the accrual one. Determine which one will benefit your business the most.
What you have read so far is not a professional tax advice as I’m neither an attorney, tax professional nor an accountant. Therefore it is wise to seek out the counsel of a tax and accounting professional as to the best accounting system most suitable for your small business.
As always, I’d love to hear from you. Let me know what you think. Your questions are most welcome. I’ll get all of them answered for you.
In our next lesson, we’ll be looking at some common mistakes that small business owners make. Having the knowledge of these will help you avoid them yourself.
Talk to you soon.