Taxes can stress you as a small business owner, so you are better off if you reduce your taxable income. A tax strategy comes in to reduce your taxes regardless of your business or investment. With a wise strategy, you reduce your taxable income and channel more money to other business operations.
Read on to discover several solutions to reduce the taxes for your small business during your business tax preparation.
1. Hire Your Family Members
The IRS allows you to hire your spouse or child to shield your income from taxes. The income you pay your children attracts a lower marginal rate, or the tax gets eliminated. If you have a sole proprietorship, your children's wages are exempt from Medicare and social security taxes. In addition, a spouse's earnings won't be subject to the Federal Unemployment Tax Act (FUTA).
2. Track Your Travel Expenses
Business travels are necessary to re-energize your business and expand industry knowledge. Tickets, meals, accommodation, and related travel expenses qualify for tax deductions. Yet, you can't get the deductions when you make the trips in disguise. So, keep a record of all costs incurred during trips. Then, if the IRS challenges your claims, the documents will show proof.
3. Save Money for Healthcare
As medical costs rise, put aside some money for unexpected and future healthcare needs. If you are eligible for a high deductible health plan, accomplish the tax strategy through a Health Savings Account. A healthcare savings tax strategy comes in three ways:
Your money is pre-tax
Your contribution grows tax-free
Your qualified tax expenses withdrawals become tax-free
4. Defer Your Income
With this cash accounting method, you can tell when cash changes hands. So, you have a leeway to implement a tax strategy based on your tax bracket. For example, if you expect your tax brackets to reduce in a subsequent year, defer your income to next year. Then, you'll pay lower taxes than you would in the current year.
5. Use an Accountable Plan
An accountable plan is vital if you reimburse your employees for travel, entertainment, and other costs. You deduct the expenses with an accountable plan and don't report the reimbursement as income. In the end, you reduce your employment tax and overall taxable income. As an added advantage, an accountable plan saves your employees on taxes.
You don't have to shoulder the business tax preparation burden if you find the above strategies cumbersome. Instead, seek professional business tax return preparation experts to sort you out. Besides, every business's tax situation is different, and the professionals are versatile. For more information on business tax preparation, contact a professional near you.Share