Fulfilling your tax obligations is part of doing business. Since it concerns your hard-earned money, the last thing you want to do is give more of your business income to the government. The good news is that there are many strategies to reduce your taxable liability. Here are some tax saving tips that can help you save thousands of dollars annually:
Choose the Right Business Structure
Before starting your business, it’s important to familiarize yourself with different business classifications, such as sole proprietorship, partnership, corporation, and more. Be sure to understand what tax bracket you’re under since it plays a major role in your taxes. With the right structure, you can maximize your tax savings.
Note that every business is different. If you have trouble selecting the most appropriate structure, it’s a good idea to reach out to tax professionals first. They will also help you create the right strategies to benefit from tax savings before registering your business.
Meanwhile, if you think you picked the wrong business structure when registering as a business entity, consider changing it. For example, if your business is taxed as a limited liability company, you still have to pay Social Security and Medicare taxes. You can eliminate those tax responsibilities if you make the switch.
Deduct Your Expenses
Many new business owners make the common mistake of failing to deduct their expenses. Unfortunately, not deducting expenses that you paid out of your pocket is a surefire way to hurt your personal and business budget.
For instance, if you travel a lot, deduct your expenses since business travel is fully deductible. You also have the opportunity to maximize your business trip by combining leisure with a justifiable business purpose. Additionally, frequent flier miles earned from business trips can be redeemed for personal travel in the future. Besides deducting the expenses, it’s advisable to separate personal and business expenses and transactions with help from a skilled accountant.
Start the Right Retirement Plan
Being your own boss means having to give up a 401(k) provided by an employer. Thankfully, there are many different retirement plans available that can save you thousands of dollars in taxes while helping you prepare for retirement. Some retirement planning vehicles to choose from are Simplified Employee Pension Plan (SEP), IRA or a Roth IRA, and 403(b) plans.
Employ a Family Member
Hiring a family member is one of the best ways to reduce your income taxes. Taking advantage of this strategy lets you pay a lower marginal tax rate or eliminate the tax on the income paid to your family member. For instance, if you are running a business with a sole proprietorship structure, you no longer have to pay Social Security, Medicare, and the Federal Unemployment Tax Act (FUTA) taxes on your child’s wages. Just note that the earnings must originate from justifiable business purposes.
Handling taxes can be one of the most challenging parts of running a business. It is often time-consuming and error-prone, even to seasoned business owners. For this reason, if you have a hard time following these tax-saving strategies, reach out to experts in accounting services who can take care of this daunting task.
If you need tax services in Rochester in New York, then you’ve come to the right place. At Bianchi & Associates, we are tax professionals with relevant qualifications, years of experience, and a strong track record. Contact us to make us your partner for your accounting needs and tax needs!