Taxes are usually among the most common concerns of small business owners, and rightly so. As if investing in and operating your bookkeeping services business is not costly enough, but an imminent tax bill just makes everything more expensive.
Before you start panicking though, you should know that there are specific tax strategies that you can leverage to reduce your small business taxes.
Claim Your Startup Costs
According to the rules of the Internal Revenue Service (IRS), new businesses can deduct some of the startup costs they incurred when preparing to put up the company. Do note though that this specific deduction only applies to certain expenses and you can only elect them for the specific tax year you started your business, so pay attention to the deadline.
Look Into Section 179 Qualified Deductions
Section 179 is a specific provision that allows small businesses to deduct qualified major purchases. You can deduct major purchases from last year provided that they qualify under Section 179. The section covers many different kinds of properties, with the most common being computer systems, equipment, business vehicles and software.
Build Your Retirement Fund
Investing in a retirement plan is probably the best deduction available to owners of small businesses. You can enjoy tax breaks if you contribute towards your employees’ SEP IRAs or SIMPLE IRAs because you can write these off as business expenses. For those who do not have employees, they can establish a 401(k) for themselves, deduct a bonus $500 just for establishing the fund, and only pay taxes when they withdraw from their 401(k) upon their retirement.
Invest in Health Insurance
Although there is some controversy about the Affordable Care Act, it can help you lower tax bill. Legally, if you have 50 or more employees, you need to provide health insurance to your employees, which is great for them and you, since you can write off the contributions as business expenses. For small business owners who do not employ other people, they can deduct their premiums for medical, long-term care and dental insurance, as well as premiums for their dependents and partners.
Be on the Lookout for Carryovers
Certain tax credits or deductions might not be used fully in just a single year, but could be carried over into next year. In general, these deductions include net operating losses, capital losses, deductions for charitable contributions and home office deductions.
There is no reason for you to pay taxes more than what you really have to. That being said, when you file the tax returns for your small business, make sure to review everything to find every possible deduction you can claim.
List down everything you bought for your business. Crunch the numbers to find out how much you spent before you opened your doors to customers. Determine which deductions you can carry over next year. While these tasks may seem like a ton of work, over time, you will find that your efforts will save you money due to reduced tax bills.