How to Save on Taxes: A Guide for Business Owners
If you’re a business owner, you need to know how to save on taxes. The more money you can save, the more you can reinvest in your business.
In 2018, there have been more changes to the tax code then there have been in at least 30 years. These sweeping changes to impact businesses, though it has yet to be determined if the changes are good or bad.
There have been so many changes, the IRS is still playing catch up adapting to them. In fact, they just released proposals regarding the business pass-through deduction.
Would you like to know how to save on taxes in 2018 and beyond?
Keep reading to find out.
The 20% Deduction
One of the first things that businesses ask is whether they qualify for the 20% pass-through deduction.
It’s one of the reasons why the Tax Cuts and Jobs Act looks so appealing to business owners.
There’s still a lot of mystery around who qualifies and how.
Any small business owner that’s a sole proprietorship, partnership, S-Corp, LLC, or LLC would be considered a pass-through business.
You can get a 20% deduction on any income earned in the U.S. that is passed through those businesses, It doesn’t include interest or dividend income, nor does it include capital gains.
Your taxable income has to be under $315,000 if filing jointly or married, or $157,500 if you’re single.
Now, the caveat is that you don’t qualify if you provide a service, such as consulting or financial services.
The bottom line is that you need to check with your CPA before you take any action regarding these changes, especially since it’s still not 100% clear.
How to Save on Taxes Without the Pass-Through Deduction
Even if you don’t qualify for the pass-through deduction, there are still plenty of ways to save on your business taxes.
Here’s how to save on your business taxes for your business.
Know Your AGI
Many tax breaks are based on your AGI or adjusted gross income. This is the number you get when you subtract all of your deductions and expenses from your gross income.
This number is important to know because if your AGI is under $200,000 (single) or $250,000 (married), you wouldn’t have to pay an additional .09% tax for Medicare.
Choose the Right Employee Benefits
Employees will join your company if you offer a great benefits package.
Things like bonuses and share distributions are taxable as income, but if you choose wisely, your benefits package will be tax-free.
For example, health benefits, meals, life insurance, educational assistance, and transportation benefits can all have tax-related benefits.
All of these are listed in the IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits.
Save for Retirement
There are tax advantages to setting up retirement accounts for yourself and your employees.
By setting up a 401(k) or another tax-deferred program you and your employees benefit from them.
The employees benefit because they don’t pay taxes on their contributions to their retirement plan. They only pay taxes when the money is taken out of the plan.
Employer contributions are tax deductible and you could qualify for an additional tax credit when you set up the retirement plan.
Visit Your Tax Situation at the End of the Year
Tax planning isn’t something that just happens between January and April of each year. It’s something that needs continuous planning and adjusting.
At the end of the year, you can save a lot by taking a few small actions.
Does your business do accounting on a cash basis?
If you use cash basis accounting, you can lower your annual income at the end of the year by delaying billing, so your payments will be received at the beginning of the following year.
Another option is to write off bad debt, invest in advertising, or buy assets and claim depreciation.
Hire Professionals to Help
Does all of this give you a stress headache? You’re not alone. More than half of Americans think that filing taxes is stressful.
As a business owner, it’s even more stressful because you have so much more at stake.
You need to make sure that you get it right and pay the correct amount owed to the IRS. If you overpay, that’s money that could have been used for something else in the business.
If you underpay, then you could get in trouble with the IRS.
To take the stress out of taxes, you’d be better off handing it to a team of pros who provide online accounting services to get your business ready for tax season.
File Taxes on Time
This may seem like common sense, but you’d be surprised how many business owners lose money because they didn’t file or pay taxes on time.
If you don’t file your taxes by April 15, that’s not an issue, as long as you file for an extension.
However, if you still owe money to the IRS, you will pay penalties, even though you filed the extension and filed your taxes on time.
For many new business owners and self-employed people, they wind up with a large tax bill because they didn’t set aside money for taxes.
Many of these business owners learn the harsh reality of entrepreneurship. The IRS doesn’t mess around, though they are willing to work with you if you reach out.
To save money on your taxes, make sure you pay quarterly taxes if you’re going to owe more than $1000.
How to Save on Taxes
Saving money on business taxes can be complicated and confusing. It’s even more complex now that we have new tax rules to live by.
If you want the best advice to know how to save on taxes, the best thing you can do to be prepared is to consult with a CPA or tax attorney.
They can help you navigate these changes. They can also make sure your business has the right corporate structure and systems in place to maximize your savings.
If you want more great business tips, check out our blog today.
