Tax season can be stressful for many people — especially small-business owners. Whether you just created your startup or you own a long-lasting restaurant, there are ways you can save money come tax filing time.
An excellent option is to explore your legal options with the tax code. These strategies can help entrepreneurs legally get the most out of their taxes when it’s time to pay them.
To legally make the best of tax benefits like deductions, a wise first step is to hire an accountant with years of experience working with small businesses. They’ll be able to guide you through filing taxes for your company, which is helpful because it can be intricate.
An accountant can help you figure out how to classify your business. For example, is it a limited liability company, limited liability partnership, C corporation, or S corporation? They’ll help you find the answer.
Accountants help you keep track of records in case there’s an audit and give you general advice on where to take your company’s plan for the future. They’ll also find all the deductions possible to help your small business save every dollar it can on taxes.
If your small business requires traveling, this expense is one you can deduct from your taxes. There are many parts of your travel you can use to make the tax bill smaller, including:
- Travel fares: When you go on a business trip, you’ll likely drive your car or take an airplane, train, or bus. Keep track of how much you spend on the tickets, gas, bags for the plane, and more.
- Food and lodging: Deducting food and lodging expenses is another smart strategy for your tax filings. The Internal Revenue Service (IRS) states the meals must be related to business, not entertainment. There is a temporary relief for businesses allowing 100% deduction of some business meals that will return to 50% starting in 2023.
- Needed services: Dry cleaning, phone calls, and taxi fares are business-related services you may find yourself paying for while traveling. Record these expenses because they are tax deductible.
Home Office Deduction
If you operate your small business at home, you should look for a home office deduction when you file your taxes. The expenses you write off should be things you use regularly.
You can deduct your rent, electricity, internet, and maintenance you perform on the home. Because you’re a business owner, you’ll fill out form 8829 with the IRS. Only the employer can claim the home office deduction — employees are unable to.
To qualify, the home office must be in a house, apartment, condominium, mobile home, or boat. The deduction also encompasses your property’s units, like a studio, shed, or barn. You must regularly use a section of the house — such as your home office — to conduct business and it also has to be your primary place of operations. If you think you qualify, consult a professional because you could use this to save money on your taxes.
Small businesses employing 100 people or fewer may be eligible to deduct retirement plans from their taxes. Depending on your business’ filing, you could get a $5,000 tax credit for three years.
For example, when you give your employees a 401(k), you can deduct the matching contributions to your workers’ plans. You can subtract the contributions as long as they don’t surpass $61,000 for employees 49 and younger. For workers 50 and older, the number can reach $67,500.
Working Family Members
Running a small business can be advantageous for someone wanting to employ family members — they can be helpful to the company and be a tax deduction as a bonus. These deductions can apply to spouses, children, and more.
Suppose you employ your child who’s under the age of 18. In that case, the federal government will exempt their income from social security, Medicare, and Federal Unemployment taxes (FUTA). Medicare and social security will only tax their income once they become a legal adult. FUTA taxes will not go into effect until they turn 21.
Providing employees with health care plans is a great way to take care of them when they’re sick — and it’s another deduction small businesses can make the most of during tax season.
Those contributions are tax deductible if you add to your worker’s health insurance premiums. Under the Affordable Care Act, you can claim tax credits if you have fewer than 25 full-time employees. Other tax credits come from offering a qualified health care plan and contributing at least 50% of premiums for each employee.
Helping Your Small Business Thrive on Tax Day
April 15 is a day the American public knows all too well as the deadline for filing taxes. As a small-business owner, times can be challenging, especially if you’ve recently started your company.
Make your taxes less stressful by taking advantage of all the deductions the IRS can give you. An accountant can review the details with you and help you save money legally. You may be able to deduct travel expenses, retirement contributions, health care contributions, and more.