The Role Of Small Business Tax Planning And Financial Compliance – For small business owners, every dollar counts. I’m sure you’re looking for any way to reduce costs and increase profits, whether it’s increasing sales, adding new products, or cutting costs. Ultimately, revenue and cash flow are the fuel that ensures the long-term sustainability of any great business.
Generally, no one likes to work along with understanding taxes. Unfortunately, no matter how you feel about it, as the saying goes, life has two definitions, death and taxes. So instead of complaining, it’s important to understand how you can add knowledge to your tax planning skills. To help, below are 10 important tax tips that small business owners can use to help them plan their taxes and get the most out of their business.
The Role Of Small Business Tax Planning And Financial Compliance
One of the most commonly heard tips around tax time is to get receipts for everything and keep as accurate records as possible. While this sounds great in theory, it’s more difficult than not only remembering receipts every time you make a purchase, but also making sure you keep every receipt throughout the year. Any lost or forgotten earnings are expenses that can complicate claims. So how do you track claimable expenses?
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By opening a special business account. For starters, many large banks (and some smaller banks) will offer accounts and services designed specifically for small business owners like you. With this account, you’ll receive a special card that you can use for business-related purchases. You can then use your statements and transaction history to show the expenses you want to claim.
Accurate records can often be the difference between a small or large tax bill, and opening a special business account can help.
Investing in the future or prospects of your employees is a simple way to save money on your annuity payments. By offering a retirement plan for your employees or opening a retirement account for yourself, you can work to reduce your taxable income today.
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You can open a Solo 401(K) for sole proprietorships. If you have many employees, you can start a 401k plan for you and your employees.
There are rules and regulations such as tax thresholds, use of pre- or post-tax money, and employer due diligence.
However, it can be a great way to earn tax benefits while contributing to the future of you and your employees! Who would have thought that tax planning could benefit you and your future?
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Charities may be required to deduct donations. Yes, you read that right – it pays to give back to your community. There are several channels you can use, so I’ll let you decide where to donate. One helpful tip is to donate less, more often, or “collect” your donations. Smaller, more frequent donations can mean more tax planning out of pocket.
Salaries are taxable, but as a small business, hiring more people is not. The good news is that if you have a family, you have people in your life who can pay a salary. You just need to hire them, assign them tasks, and pay them on time.
Of course you should do it for a good reason. For example, you shouldn’t hire your 7-year-old. However, you can hire your spouse and teenage children. So, you can save taxes by providing income for them. You can even do this for your retired parents. Think about it – we gift money to our families in various ways, but giving them cash does nothing. By assigning them work-related tasks and processing payments through your payroll, you can pay them as usual and take advantage of your business tax deductions.
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The key is to keep things running smoothly by assigning appropriate positions and paying fair wages. If your kids help clean the house and you’re paying them a 6-figure salary, it might surprise you. Plus, that salary will come with a hefty tax bill for a teenager. Common sense plays a big role in this matter.
While renting a business space may be beneficial now, it can cost you money in the long run. Buying real estate can help reduce your tax bill and increase the net worth of your business in the future. First, you can deduct business expenses from your taxable income. Second, the building’s value can increase over time and become an asset for your business in the future.
Your business classification will determine how your taxes are calculated. If you’re a sole proprietor (or sole proprietorship), your business is usually taxed as an entity that includes your personal income, so your invoice is calculated using your name, income and deductions as part of your personal tax return. Two-member LLCs are taxed similarly.
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A multi-member LLC can elect to be taxed either as a partnership or as an S-Corp, which is treated as a partnership or as an S-Corp. tax, personal income tax.
Different structures will suit different businesses, so it’s important to understand the different classifications with the help of good legal counsel and a CPA to determine which one will work best for your business.
It’s good to get new work equipment. You’ll gain new tools and technologies that you can use for your business, and you can claim the value of these items at tax time. The question is, what do you do with the equipment you want to replace? Just throw it away or let it gather dust in storage?
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Why not get tax debt forgiveness? (and helping the community of course). When you donate to a nonprofit organization, you can claim the fair value of your old equipment as a deduction. If you don’t have enough money to donate, you may be able to claim compensation for your disposal. This is your invitation to make some upgrades to your office equipment!
The qualified business income deduction will benefit the self-employed and small business owners. If you are a partner, you can deduct 20% of your business income from taxes. In short, it allows you to significantly reduce the income tax you have to pay.
There are some criteria you must meet, but if you’re smart, you can make big savings.
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Assets are important to some businesses, but they often depreciate. The good news is that under Section 179, you can deduct capital purchases immediately instead of depreciating them over time instead of capitalizing them.
Tax planning can be overwhelming if you’re not prepared. Trying to keep up with the latest laws, understanding what you can claim and preparing your annual tax return is, frankly, a full-time job. This is what most people around the world do for a living. Trying to manage it can make your business success and personal wealth growth seem impossible. However, sticking to your core skills while gaining experience in other areas is usually the best outcome.
Enlisting the help of a wealth advisory firm that can help you connect directly with a highly qualified CPA is a proven way to maximize your tax bill, increase your personal wealth, and ensure your business is successful. No one succeeds alone. Even the greatest of all time, Tom Brady, needs one to make a great field goal.
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Navigating the business tax mine can be tricky. However, with the right knowledge and people on your side, you can limit your stress and maximize your income at tax time.
This section contains general information that is not suitable for everyone and is for informational purposes only. Nothing herein should be construed as an offer to buy or sell or as investment advice. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. Past performance does not guarantee future results. The information in this material is not intended to provide tax or legal advice. Please consult a legal or tax professional for specific information regarding your personal situation. For more information about Julius Wealth Advisors, services and fees, contact us or visit counselorinfo.sec.gov. Tax planning is an important aspect of running a small business and involves taking steps to minimize the amount of tax you have to pay while ensuring compliance.
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