Are you a small business owner looking for ways to reduce your tax bill? If so, you're not alone, but you are in luck! In this blog post, we will discuss eight tips that can help you save money on your taxes. Follow these tax reductions tips, and you'll be on your way to keeping more of your hard-earned money.
Let's get going!
This is an obvious place to start: make sure you're taking advantage of all tax deductions and credits available to you. Some common ones include the home office deduction, the self-employment tax deduction, and the child tax credit.
Prioritize keeping good records of your business expenses. This makes filing your taxes much easier and could even save you money on audit fees.
(Read these Record-Keeping Habits That Will Help You Maximize Your Tax Deductions next)
If you're a sole proprietor or partner in a partnership, consider incorporating or forming an LLC. This can help protect you from personal liability for business debts and lawsuits. But changing your business structure in this way also has potential tax-saving benefits because it could mean you reduce your tax responsibilities.
This isn't the right move for every small business owner, but if you have a family member interested in joining your business, it could pose tax reduction benefits!
(Learn more about what the IRS calls "Family Help" here.)
Not only is investing in business equipment and software is beneficial for your business growth and operations, but it can also have tax reduction advantages.
In many cases, this equipment and software can be written off as a business expense, and the entire purchase price can be deducted from the business's gross income. This lowers the amount of tax you owe on your business income, saving you money come tax time!
Time to establish a retirement plan for your business if you haven’t already! This helps reduce your taxable income and saves you money in taxes now and in the future.
There are several different retirement planning vehicles to choose from, including:
Simplified Employee Pension Plan (SEP)
An IRA or a Roth IRA
403(b) plans
(Discover the importance of taking a proactive approach to business tax returns in this post)
If you're self-employed, you can deduct your contributions to a healthcare savings account if you set up a Healthcare Savings Account. There are a number of federal guidelines that outline who can open these accounts. For example, you must be enrolled in a qualifying high-deductible health plan.
Healthcare Savings Accounts (HSA) are tax-advantaged accounts that allow you to save money tax-free to pay for qualified medical expenses.
For 2021, you can contribute up to $3300 per year if you are single or $7200 per year for family coverage. Compared to 2020, this is about a 1.5% increase.
The contributions are tax-deductible, the earnings grow tax-deferred, and distributions for qualified medical expenses are tax-free. Remember, the account must be in your name and used only for healthcare expenses.
So, if you have an HSA, make sure you use it! The tax savings can be significant. And if you have yet to get one, now's the time.
You can also deduct the cost of health insurance premiums for yourself and your dependents.
(Read more about HSAs on the IRS website next.)
Talk to a tax professional, like the ones at Two Roads, about other ways to reduce your tax bill. There may be even more deductions or credits available to you that you aren't aware of!
(Before you head out, don't miss this post next: 4 Really Good Tips For Effective Invoicing for Small Businesses)
If you're ready to explore more tax reduction tips for your small business, Two Roads is here for you. Our tax services include equipping you with the information you need to ensure you are able to deduct what you can from your payable tax total. Contact us today!