10 Legitimate Ways to Save Money on Taxes

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Save Money on Taxes

Tax time can be harrowing for small businesses. On one hand, you’re scrambling to make sure you identify and take every possible deduction. You want to make sure that each piece of office equipment is depreciated, that every mile you’ve put on your vehicle for business purposes is accounted for. In some cases, it’s tempting to pad some of those numbers a bit, in hopes that it’ll result in a lesser tax burden. Apart from being illegal, of course, this kind of practice is bound to get you audited and paying more in the long run.

The good news is that there are plenty of legitimate ways to decrease your small business tax burden within the framework of the law. Here are a few you can consider:

  1. Get organized. The first step in being able to save money on your taxes is having all of the necessary documentation. Don’t wait until the last minute to start sorting through receipts and other records. Develop a filing system where you can store all the relevant data for given types of deductions and expenses.
  2. Spending a few hours researching deductions and credits can pay off big time.

  3. Understand tax law. The tax law landscape is complex, without a doubt. You can’t be expected to understand all of the intricate workings of the tax system. That being said, spending a few hours researching the types of deductions you can take and what sorts of credits are available can pay off big time.
  4. Incorporate if it’s right for your business. If you have a relatively new business, you’re probably not going to show a profit for the first couple of years. Incorporation in that instance isn’t always a good thing. But if you have a strong small business that’s been consistently making money, you should consider a different structure. Sole proprietorships and partnerships receive some of the heaviest tax burden in those cases.
  5. …there are specific rules as to what constitutes a home office

  6. Consider setting aside a portion of your home for a home office. Now, let’s be clear about this: there are specific rules as to what constitutes a home office, and you need to follow them to the letter of the law. That being said, a home office can be a tremendous deduction for your business. If your business doesn’t require a storefront and if you don’t typically meet clients in your office, it can work very well for you. It will also save you the cost of buying or leasing office space.
  7. Find other personal deductions for business use. The same holds true of using your vehicle for business use. In the case of a vehicle, you need to keep a daily mileage log, and be able to show when and why the vehicle was used for business purposes.
  8. Look into outsourcing some of the functions of your business. Contractors can be less expensive than employees. Here again, you need to make sure you’re following the law. If someone working for you shows up every day when and where you say, they’re probably not a contractor; they’re an employee. Some functions of your business are great opportunities for outsourcing, but others will require employees.
  9. Pay your family. If you have a family business, you can split your income with your spouse and your children. This may allow you to move some of your income around from a higher tax bracket to a lower one. Here again, there are specific rules about how paying your children or your spouse works, so make sure you talk to a tax expert to make certain you’re following those rules.
  10. Plan for taxes throughout the year. Many small business owners don’t think about taxes until it comes time to file. Spending a couple of hours at the end of each month gathering receipts and looking at your overall tax situation can help you see a lower tax burden. This is especially important in December, as there may be last-minute purchases you wish to make before the tax year ends.
  11. Pay your taxes on time. Asking for an extension doesn’t reduce the interest and fees you’ll need to pay if you owe. Make sure you pay your taxes when they’re due. If you’re required to do so, make sure you’re making your quarterly estimated tax payments, as well.
  12. Seek out expert advice at tax time and throughout the year. Tax laws are constantly in flux. There are experts out there who know what’s going on in the world of small business taxes. Put their knowledge to work for you. Consider meeting with a tax adviser each quarter, rather than just when it’s time to prepare your taxes.

Don’t pay more in taxes than what’s absolutely necessary, but don’t risk being dishonest, either. Follow each of these tips and you’ll realize legitimate and significant tax savings year after year.

Article courtesy of SCORE and Dominique Molina, President of the American Institute of Certified Tax Coaches.

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SCORE is a nonprofit association dedicated to helping small businesses get off the ground, grow and achieve their goals through education and mentorship.