Finding ways to reduce taxes for a small business is an essential step for said business’ survival in the competitive economy of today. The tax reform of 2018 put many entrepreneurs into an optimistic mood, as reported Business News Daily in March. However, experts interviewed by the Forbes say that that optimism is unwarranted, as the changes in the law will only benefit big corporations.
How to Reduce Taxes for a Small Business: 4 Ways to Try
1. Consult a professional when making tax elections
The taxation system in the US is extremely complicated, so don’t assume you know the best way to find loopholes within it unless you are a professional in that very thing. One big benefit small businesses have in this system is that it allows for some flexibility as you get to elect which deductions to claim and to what extent.
Under the current laws, the majority of business expenses are deductible, but this doesn’t mean that it’s best for you to claim all of them as such. That’s why you need an expert’s advice when navigating the complex structure of the taxation system. Consult them to develop a plan that will benefit your company most in the long run. Be sure to adjust that plan depending on your business’s progress.
2. Use the services of a PEO
A PEO (professional employers organization) can help you avoid all or the majority of employment taxes. This will reduce taxes for a small business so greatly that you might be able to hire more people and take your company to the next level. A PEO can not only hire employees to save you money but also provide them with benefits, which will help you attract higher-qualified professionals.
But be aware that not all PEOs are equal. PEO Spectrum warns that there are over 700 PEOs in the US today and their terms and services differ greatly, so it’s essential to get a comparison of these companies before hiring one.
3. Deduct auto expenses the right way
There are several ways to reduce taxes for a small business that uses a car. You can choose to use the standard mileage rate or actual car expenses. Calculate both to see what ends up most beneficial for you. Bear in mind that the standard rate changes every year. For example, in 2017 it was 53.3 cents per mile.
If you use the vehicle for both personal and business needs, you’ll need to choose actual car expenses. Separate the expenses carefully by category to avoid any penalties in the future.
It will be easier to calculate your car expenses if you use one of the mobile apps that track your mileage, gas, etc.
4. Make the most of the deductible business meals
Meals can also be considered a business expense, so be careful to keep the receipts from all lunches and dinners related to your work. This includes those expensive restaurant meals you use to impress potential business partners.
However, be careful not to go overboard on these expenses. A shortage of cash is one of the main reasons of small business failure, so you have to spend it sparingly. It will also be quite hard to explain how it’s a business need for you to have a lavish dinner in a premier restaurant every other day.
How to Reduce Taxes for a Small Business: Final Thoughts
Small business owners already feel like they get no help from the government, according to a Kauffman Foundation survey, and this situation isn’t about to change. Therefore, using every trick you can to cut the tax load is a must for your success. Consult a professional to find every loophole available and then plan your expenses so you can benefit from them to the fullest.