Taxes – are a stressful thought for everyone, including businesses. If you are a small business owner, you likely know the feeling of concern regarding business taxes. It’s frustrating to know that more than half of your hard-earned income goes to the government. If you need advice to reduce your taxes this year, consider the following.
The economic changes are still revolving from the pandemic, with more than 10% of small business owners claiming that financial stability is challenging for them now. The bill at the end of each year is the worst nightmare for a small business. Managing taxes for your business shouldn’t be a burden.
How do taxes impact your business?
Each small business owner needs to pay taxes. But while the amount of money paid varies according to the business’ structure, the average company pays around a 19.8% tax rate based on their income. Business owners who don’t pay their taxes, or pay them late, face lines or, in other cases, criminal trials. The good news? Managing taxes isn’t as complicated as it may seem to you.
Most taxpayers believe they will never understand their tax return. Accounting comes with challenges, but you don’t need a dictionary to help understand your business’s financial position. Here is a quick exponent for what you see on your balance sheet:
⦁ The money earned through product sales is the revenue.
⦁ The cost of producing goods and selling by your business (COGS).
⦁ The money is left after subtracting the COGS from the income.
⦁ Net sales – Total profit made after deducting the COGS from total revenue.
Business owners often ignore the difference between their net and gross revenue. Let’s say your product or service costs £100 to be manufactured, and you sell it for £50 – Your gross profit is £50. However, after expenses and taxes, your net income might become £10. So, you need to understand your earnings and increase business profitability.
1. Consider making your taxes digital
One of the best and simplest ways to get into tax issues is to make your taxes digital. Making tax digital with QuickBooks. You will learn everything from what making tax digital is, how to start filling your taxes, and when.
2. Hire a Family Member
One of the best ways to reduce taxes for your small business is to hire a family member. There are many ways in which hiring a family member can be beneficial. Children under 18 employed by the parent who is the business owner don’t pay FICA taxes. And since the child doesn’t spend half of their taxes, neither does the company. Wages paid to children significantly decrease the net income of a business, reducing the amount the parent pays in taxes. Income paid to a teen is taxed differently and lower than that of the parent. It helps reduce the tax burden across the board.
3. Reimburse considering an accountable plan
You might need to reimburse workers for travelling, entertainment, and other tools. But before you do so, you must meet some requirements. By creating an accountable plan, your business will deduct the expenses and not report the reimbursements as income to their employees. This will potentially save your business, lowering taxes. If your company does not have an accountable plan for the employees, they will likely ask for one. This can
4. Consider a Retirement Plan
As a small business owner, you have several retirement options to maximise savings and reap tax benefits. For example, some retirement planning vehicles include:
⦁ Roth IRA
⦁ 403(b) plans
There are plenty of different retirement plan options for you on the IRS as a tax saving option.
5. Save Money for Healthcare Needs
Another great way to reduce small business taxes is to put aside cash for healthcare needs. Medical costs increased significantly this year, and while you might be healthy now, saving money for unexpected future healthcare needs might be essential. If you create a highly efficient health plan, you can raise money into a health savings account.
It’s encouraging for business owners to explore using an HSA to reduce taxes and potential medical costs.
6. Deduct travel costs
If travelling a lot is necessary for your business, you might be able to reduce your business taxes. Business travel is deductible, although travelling for personal purposes does not have the same benefits. To increase your business travel as a small business owner, you must have justifiable business reasons.
7. Tax benefits you can consider providing to your employees
⦁ Transportation benefits
⦁ Long-term insurance
⦁ Disability insurance
⦁ Group term life insurance
⦁ Dependent care assistance
⦁ Meals provided for employee convenience
⦁ Educational assistance
8. Consider a home office
The home office is quite popular right now, especially since it’s a great way to get a break on rent, home-related utilities and expenses, and so on. But a home can also produce other taxes, too. For example, if you bought a laptop or a computer in 2021 for your home office and you haven’t already considered it as a business expense, you might be able to deduct its current market value. Buying a £3,000 laptop will be worth £1,250 two years later. You will be able to claim the £1,250 deduction if you start using the computer for business purposes. It’s something that is often missed by taxpayers or completely forgotten. Make sure you keep the receipts of the original purchase as proof.
If you spend a lot of time in your business, the chances are that you are tax-deductible. Even the coffee you’re drinking every morning can be tax-deductible and help you save a lot of money in taxes. Make sure you keep every receipt and don’t forget to use accounting software so you can enjoy outstanding records.
With careful planning, you can significantly reduce taxes in your business. Maybe consulting a professional will help you make the right choices for the savings discussed above.