Taxes are one of the biggest expenses plaguing any business, but the effects are more damaging for the small business owner. While business expenses can certainly reduce the tax burden, the tax burden can also cut into the potential profit margin. However, there are five primary methods businesses can use in order to reduce their income tax liability.
Have Receipts for All Tax-deductible Expenses
Failure to keep track of expenses is one of the worst mistakes any business owner can make.There are so many things that you are able to deduct as a business expense it really would be a terrible idea not to look into this. Work with an accountant to help you figure out just how many things you can deduct from your taxes. With new software available for Smart Phones it’s easy to scan, file and organize receipts for all business expenses.
Costs of Health Insurance are Tax-deductible
Anyone who is self-employed and has to make payments for health insurance can deduct those payments from his or her business taxes. This will lower the amount of tax liability the business incurs. However, you must remember if you still work a full-time job that offers insurance or your spouse works for an employer that offers health insurance, these payments are not tax-deductible.
Keep Track of Business-related Mileage on your Vehicle
Keeping track of mileage can sometimes be difficult and time-consuming, but it is one of the best ways to reduce the amount of business taxes you have to pay. While the IRS offers a standard mileage deduction, this is not sufficient for most people and is actually less than the actual mileage.
Hire Family Members
Many people don’t realize this, but there are actually rewards for hiring your own kids and even other people’s kids in order to reduce your employment tax. These mini employees are allowed to earn up to $5,700 without paying taxes while each of these expenses is part of your business related tax credits. It is also a great way to find employees as you already are aware of their work habits and availability.
Work from Home
When you operate a business from your home there are many allowable tax credits to which you are entitled provided you have a specific area you use only for business and don’t have an office outside of your home as well. If both of these fit your business, you are still allowed to claim a portion of the expenses you incur. Not only are there incentives to do this in many cases it is just more economical to run your business from your home.
It’s important for a business owner to understand the importance of tax credits and how they can work in his favor. The best way to make sure you don’t cut yourself short is to have your accountant or tax advisor help you keep track of the expenses your business incurs during day to day operations. Following these tips is a sure fire way to help reduce the toll of taxes on your business and put more money back into your pockets.