Tax preparation is the best way to minimize your small business taxes. Whether it is done by tax professionals or you do it yourself, you want to organize your documents and update your tax strategy, so that you can take advantage of tax policies designed to save your hard-earned profits.
Business Formation and Taxes
The first step is to know your form of business. Are you a Sole Proprietor, Contractor, Partnership, LLC, or Corporation? Each business type requires a specific tax form. Selecting the right form of business can also save you thousands in taxes and even more in headaches.
Tax Records
Your next step is to gather your income and expense records for the year. You can see the full list and rules at https://www.irs.gov/pub/irs-pdf/f1040sc.pdf, but generally, you are looking at expenses like:
- Supplies and materials (office supplies, product materials)
- Travel expenses (gas, mileage, tickets, meals)
- Insurance premiums
- Advertising expenses
- Legal and professional services
Using the Correct Tax Forms
Next, you find and fill out the right tax form. If you do this yourself, be sure to read every detail on the form and its instructions, because we see entrepreneurs make money-losing errors with expenses, depreciation, and deductions.
Hidden Tax Savings for Businesses
Clearly, you need to account for your income and expenses, but it is also a good idea to explore further to see what you can save. The best way to do that is to consult with a qualified tax professional, but we want to offer some helpful suggestions.
If your company is a corporation, you file your business and personal taxes separately. All other forms of business file with their 1040 and a Schedule C form and some need additional forms such as the K-1 form for partnerships.
Tax Saving Tips for Entrepreneurs
What is most exciting about being organized and knowledgeable about taxes is that there are some excellent ways to save on your business taxes:
- Write off bad debts
- Create deductions like gifts or bonuses
- Account for equipment depreciation (vehicles, equipment, etc.)
- Take advantage of available tax credits for providing employee benefits, for eco-friendly changes, hiring practices etc.
- Take advantage of scheduling expenses or income into the appropriate year
- Set up an IRS qualified retirement fund
- For some corporations in some circumstances, charitable giving can be deducted
Each of these ideas has specific requirements and limits associated with them, so consult a tax professional and be sure you are following the law properly and maximizing your benefit. For example, some deductions are pro-rated throughout the year, so carefully planning purchases is going to be very helpful at tax time.
What is taxable income for a business?
Businesses pay taxes on profits, not revenue. That is why you want to focus on your Schedule C and get a true reflection of your profits minus expenses so that you are paying appropriate taxes. With enough knowledge or help, you won’t be leaving money on the table.
Learn more: Withdrawing Cash from Your Closely Held Corporation or Business
What percentage does a small business pay in taxes?
The average small business today pays a tax rate of 19.8%. Small businesses with one owner have a lower average tax rate of 13.3% and those with more than one owner have an average of 23.6% according to the Small Business Association. The corporate tax rate is a flat 21% under the new tax law. Keep in mind that owners of a corporation also file individual taxes on their income. Again, knowing which business form is best for you is a distinct advantage at tax time.
Get Solid Tax Advice and Save Money
Learning all the ins and outs of tax law is very challenging. In fact, small business owners spend anywhere from 21 to 120 hours every year on bookkeeping and taxes, and that is a time most business owners would rather spend making money! That is where ASCEND comes in. Contact ASCEND Business Advisory as early as possible before tax day, and let us help you save your hard-earned dollars and save time. You can learn more at https://wrcompany.biz/wr-company/ or call us right away at 888 297-3321.
Disclaimer: This article is not intended as tax advice. It is a suggested reference to give you ideas to discuss with your tax professional. The tax code changes frequently, and every business is different.