3 Tax Reduction Strategies for Small Businesses
Did you know that the U.S. tax code is around 70,000 pages long?
No wonder, as a small business owner understanding your tax obligations can be overwhelming. Unfortunately, tax reduction cannot be achieved overnight, which is why you need a strategy for the upcoming tax year to minimize your tax burden when it’s time to file again.
There are three basic strategies that you can explore, which are: –
The Cash Balance Plan
This strategy allows you to reduce your business taxes using a 401 (k) Profit Sharing Plan by adding a Cash Balance Plan. This is because the contribution limits are much higher. For owners above the age of 60, the contribution limit can extend beyond $330,000. In addition, as the contributions are tax-deductible, both business and personal taxes will reduce.
Reducing your taxable income
Begin by reviewing your inventory to identify if any items are obsolete. Then, as the year ends, you can eliminate these items and add to the cost of goods sold section. This brings down the total taxable income.
Do you plan on doing any personal traveling in the upcoming year? For any trip that you take, make sure to conduct some business. Expenses from business travel are fully deductible. If you conduct some business on each trip, you will find portions of your travel expenses can be deducted.
Review procurement of equipment and depreciation
Any new equipment purchases that you have made in the last year, such as a laptop, car, or office machine, can help bring down your tax burden. For your existing equipment, work with a CPA to understand depreciation rules. With both a shorter depreciation timeline or accelerated depreciation method, you can reduce your annual taxes.
Small business owners work hard to bring in revenues, achieve profitability and earn a living from their businesses. Therefore, taxes can be pretty stressful as money leaves the business kitty and goes to the government. Fewer taxes owed mean more money for you and your business. Total elimination of taxes may not be possible, but you can reduce what you owe with a well-thought-out strategy in place.
