With the ever-increasing pressure of taxes on small businesses, owners need to find ways to minimise tax expense, legally.
Here are ten ways for small business owners to save money on business taxes:
- Incorporate your business
Sole proprietorship and partnership are two of the most taxed business entities. Incorporating your business, despite the more complex legal requirements, will help you limiting your business liability, give you lower tax rates and offer you other tax advantages.
- Make your business home based
Doing so will help you reducing business overheads and enable you to write-off or deduct business expenses of your home. Be warned, you must find a way to keep your professional image intact, as home business are stereotyped as being unprofessional and being managed by CEO in his slipper and pajamas :)
- Split income among your family members
If your business is a family business, consider splitting your income to your spouse and children – Put them into the payroll and pay them reasonably. This enables to you legally manage your taxed income, moving a portion of your higher-taxed income to a lower-taxed one.
- Alternatively, turn a portion of your income into dividend
Turning a portion of your salary into dividend paid annually can save your money on income taxes. Google’s founders don’t receive salary – They chose for dividend over salary, highly probable for the tax saving purposes.
- Turn your personal assets into business-purpose uses
Using part of your house for business purposes, using your car for business purposes, arrange your entertainment expenses to be business-related purposes – There are many ways to give you tax savings legally by transforming your personal belonging uses into business-related uses.
- Track your expenses well
This is actually obvious, but many business owners neglect it – You have to track your expense well. Keeping your expense well documented, storing all of your business receipts, and any other important proof of expense will help you in tax audit process.
- Be well-informed and follow business tax updates
Be well informed: Learning about business taxes and following the news and updates on business taxes proves to be effective in helping you to manage your business taxes. Those who don’t know and don’t keep up with the updates could end up paying higher amount of taxes than they should. Better yet, understanding what you pay in business taxes will allow you to find “tax legal loopholes” that can help you reduce your taxed business income.
- Pay your taxes on time
Another obvious thing to do but many business owners don’t take it seriously – Paying all taxes on time (preferably near the end of payment deadline to preserve cash flow) will help you avoid late tax payment and filing penalties and interests.
- Outsource some of your business functions
Outsourcing allows you to naturally cut your business spending on employee wages, as well as your business taxes, especially on those incurred on payrolls.
- Make tax savings your top priority in business planning
Some do only worry during tax season. However, making tax savings your priority in business planning proves to be an excellent way to save money on taxes. Better yet, plan your tax for a full year of business operation. This way, you can manage your business expenses, purchases and investments with tax savings in mind.
If you have any other tips, please share by commenting on this blog post :)
Small business tax tips
Image by Paul Keleher.