As a small business owner, it is important to find ways to reduce your company's tax liability. There are many legal ways that you can reduce your tax liability, especially if you engage in smart tax planning and preparation.
1. Consider How Your Business Is Structured
First, you may want to look at how your business is structured. Many small businesses are considered pass-through businesses, where the owners pay the taxes on the business income instead of the business actually paying the taxes. With pass-through businesses, in certain circumstances, you can deduct a certain percentage of your business income.
However, that may not be the best way to go. You may want to change to a C-corporate structure, where your business pays the taxes instead of you as an individual. Deciding how to classify your business can be complicated and is something you should discuss in-depth with your accountant.
2. Have a Plan for Paying Taxes
As a business, you can't just wait until the tax filing deadline to pay your taxes. You are expected to pay taxes on a quarterly basis. Failing to pay projected taxes each quarter can result in additional fees when it comes to the end of the year. You want to figure out your tax burden so that when April rolls around, you are not facing a big tax bill or a tax refund.
A tax refund may seem nice, but it means that you were paying money to the IRS throughout the year that you could have been using instead. An accountant can help look at your income and help you pay the right amount of quarterly taxes so your tax liability is as small as possible when filing time comes around.
3. Set Up Retirement Plans
Retirement plans are an excellent way for you to reduce your tax liability as a business owner and are a great way to offer an additional perk to your employees. The contributions you make towards a retirement plan for your employees can be tax-deductible, depending on the type of plan you set up. Retirement plans are a great way to increase what you offer your employees while reducing your tax bill. Work with your accountant to set up the right type of retirement funds for your employees so you can enjoy a business tax deduction.
Changing how your business is structured, having a system for paying quarterly taxes and setting up retirement plans for your employees are all three tasks an accountant can help you with throughout the year that can benefit you when tax time rolls around, allowing you to reduce your business's tax liability. Contact a company that offers accounting services to learn more.
