Taxes for businesses can bring you confusion especially if you are running a small business. As an entrepreneur, you may have questions concerning the amount of taxes that you require to pay during the tax season. You may have unclear thoughts about why you are expected to pay a lot of taxes at the end of the year. It is also essential to have it in mind that some changes in the tax law took effect on January 1, 2018.
The following are some of the ways that can help you to reduce your taxable income and in the event lessen the amount of taxes that your business is required to pay to the tax authority.
- Employ Accountable Programs
If your company considers compensating your employees for events such as traveling, tools, and entertainment, it is imperative you ensure that you use a program that meets IRS requirements. By ensuring that your plan can reach all the IRS requirements, then you run under an accountable plan. The company deducts these expenses but does not disclose it to the taxing body, and at the end of the day, you can save a lot of money for your business. The new tax law allows all employees not to deduct unreimbursed employee expenses as miscellaneous. Therefore, they are likely to demand an accountable plan if your business has not yet effected it.
- Making smart tax selections
The new tax law allows businesses to deduct up to $1 million for the equipment and machinery they purchase. In a case where the company is a startup and has not yet started fetching in any income, it is wise to advise your accountant to consider depreciation of these materials. It is also logical to lay an excellent plan to spread the deductible amount of machinery and equipment throughout your future tax years as an alternative to subtracting the amount at once.
- Keep an eye on carryovers
Some credits and deductions have restrictions that can deny you a chance to use them in the running year. Such deductions may allow you to carry them over to the following years. It is imperative to keep a good record concerning carryovers to ensure that you utilize them in the future years. Most tax preparation processes do it automatically. Some of the expenses that may fall under this category include charitable contribution deductions, home office deductions, and net operating losses.
- Choose to abandon property instead of selling it out
Some property may have no value for your business. Such property should be abandoned and not be sold out for a nominal income. If a property is left, your business may consider it as an ordinary loss and not as part of capital losses. Ordinary losses are fully deducted from taxable income. This may save your business some taxes in the long run.
- Use retirement plans
It is always wise to avoid as many expenses as possible in business. Choosing a good retirement savings plan for your employees may save you from paying taxes on the same. Some plans lay all the burden on the business owner while other programs distribute the charge to the respective employees such as the 401(K) and self directed IRA custodian do. Ensure that you enroll your employees in a retirement saving plan that gives them the flexibility to plan for their retirement.
- Plan after every end of the year
Taxing is an activity that runs throughout the year, but you can get your business into a better saving position if you choose to take action at the end of the year. You can choose to delay payments made late in the year to allow them to be made in the following year. This may lower the tax liability for that year since the profits that you delay will be carried forward.
You can minimize the amount of taxes that you pay at the end of every year if you utilize the opportunities and breaks that are available. Ensure that you and your accountant are well versed with the various methods of reducing the amount of taxable income for your business.
by: Sia Hasan