Business income tax: You probably don’t think about taxes all that often.
Unless, of course, you have a business and need to file your taxes at some point.
If that’s the case, then you probably spent quite a bit of time over the past few months gathering up all the receipts and other documents you need for your taxes.
Businesses are great for adding some extra income to help you get through those tough times or just give you an opportunity to save on something rather than buying it directly.
However, they also come with their own set of challenges including needing to pay taxes on them.
Fortunately, there are ways to cut down on your tax bill while operating as a business.
Here are 20 ways to save money on your business taxes this year!
20 Ways To Save Money On Your Business Taxes
There are a variety of reasons why your business’s taxes might be higher than expected this year. The good news is that with a bit of research and planning ahead, you can reduce your tax burden next year and beyond. Tax season is the perfect time to reassess how you handle business expenses, which often lead to tax headaches for small businesses. Luckily, there are a number of ways to save money on your business taxes so you can reinvest those savings in growing your company instead. Here are some tips to help reduce the cost of your business taxes:
Check Your Fee Estimates
Any time you use a tax service to estimate your taxes, you’ll want to double check the figures they provide to make sure they’re accurate. This is particularly important if your business has undergone any major changes recently, such as a large increase in revenue or the addition of new owners. You might also want to reassess your fee estimates if you’ve used the same service for a few years and their prices have increased substantially. If you decide to seek professional assistance, make sure you select a tax preparer who specializes in small businesses. A good tax accountant can help you reduce your tax burden by suggesting tax deductions you may not have thought of, such as certain types of business travel.
Review Past Tax Returns
If your business’s taxes have increased dramatically from one year to the next, review your past tax returns to find out why. If you find that your expenses have gone up significantly but your revenue hasn’t kept pace, you may be able to reduce those costs in the future. For example, if your business travel has increased significantly, you may be able to reduce your travel costs by booking through a travel aggregator like Expedia or taking advantage of frequent flyer miles. You should also review your past tax returns to see if there are deductions you could be taking advantage of but aren’t currently. For example, some businesses don’t realize that they can deduct the cost of advertising.
Consolidate Finance Transactions
If you’ve been keeping track of your business’s expenses in a spreadsheet and are filing a business expense deduction, you may want to consider consolidating those expenses into a single account. While your accountant may prefer that you keep track of specific categories and amounts, consolidating your expenses into a single account can reduce your tax burden. For example, you can combine your advertising and marketing expenses into one account, which can make it easier to track expenses that you might have otherwise kept in separate categories. Even if your current method of record keeping is perfectly acceptable for tax purposes, you may want to consider consolidating certain expenses for future reference. For example, if you’ve been keeping track of your internet service and business phone expenses separately, you may want to combine them into one account to make it easier to track expenses in the future while reducing your tax burden.
Estimate Employee Taxes Responsibly
If you employ people, you may be required to pay quarterly taxes to cover federal and state income and Social Security taxes. While you can use the same methods to estimate your taxes as you would for your business taxes, it’s important to be responsible when estimating your employees’ taxes. Your employees’ taxes are based on their hours worked and their salary, so if you don’t have accurate figures for either of those numbers, your estimates may be off. You may be tempted to lowball your employees’ hours worked to save some money on your taxes, but doing so may also cost you when your employees are due for a paycheck. If you underreport the hours your employees have worked, they may be owed additional money when they get paid.
Ask For A Repayment From the IRS
If you’ve overestimated your business’s expenses, you may be able to get a repayment from the IRS. This is known as a “re-determination”, and it happens when the IRS reviews your tax return and determines that you’ve claimed too many expenses or claimed them in the wrong category. While you may be hesitant to give the IRS a call and ask them to correct your tax return, keep in mind that it’s in your best interest to get your taxes right. The IRS may be more inclined to give you a reduction in taxes if it appears that you simply made a mistake rather than trying to defraud them.
Make Estimated Tax Payments Throughout the Year
If you have a significant amount of savings to report on your taxes, you may be able to reduce your tax burden by making estimated tax payments throughout the year. If you’re self-employed, you may also want to make estimated payments to make up for any tax shortfalls you experienced in the past. While you’ll also have to make estimated payments if you expect to owe taxes at the end of the year, this can help ensure that your business’s finances stay in order. When determining the amount of your estimated payments, you’ll want to take a few things into account, including how much money you’ve made in the past and your business’s expected growth. You’ll also want to consult a tax accountant to help you determine the right amount and payment schedule.
Track All Business-related Travel and Dinners
If you travel for business, you may be able to deduct some or all of your travel expenses from your taxes. Keep track of your travel miles, the dates you travel and any other relevant details. You may also want to consider keeping track of any meals you consume during business-related travel. You may be able to deduct business-related meals if you have to travel for work, if you’re hosting clients or if you’re attending a seminar or training. Keep track of the amount you spend on food and any relevant details, such as who you dined with and whether the meal was related to business.
Change The Way You Record Inventory and Income
If you’re a business owner who keeps track of inventory and then sells the items you’ve purchased, you may be able to reduce your taxes. Instead of recording the sale of your inventory as revenue, you can record it as a reduction of your inventory, which can help reduce your tax burden. If you sell products or offer services that have a consistent price, this is a good option. Financial services like accounting and consulting that tend to vary in price each year may make it difficult to use this method to reduce your taxes. You may also want to change the way you record income when completing your taxes. This can help reduce your taxes if your income tends to fluctuate each year. If your income tends to be consistent each year, you may be better off changing the way you record inventory and income.
These tips can help you reduce your tax burden and save money on your business taxes. By following these tips, you can invest your savings in growing your business and providing better services for your customers.