The first strategy that can help you in reducing the amount of taxes your business owes is contributing to a retirement plan. Investing in a retirement plan can help you diminish your tax bill by offering deductions to contributions made into the retirement account and if your retirement is a pre-tax contribution then you will not have to worry about paying taxes on them until later (you will not pay taxes on the income until it is withdrawn). With a certain amount (maximum amount for 401k is $19,000 and $6,000 for IRAs for the year) being taken out to go to a retirement account, this will slightly lower your take home income, which will also lower the amount of taxes you owe for the year as well.
Thanks to the Tax Cuts and Jobs Act, if you are considered a pass-through entity (Sole Proprietorship, Partnerships, LLC that are treated as Sole Proprietorships or Partnerships for tax purposes, or S-Corps), you can now take advantage of the Qualified Business Income deduction. This deduction allows you to be able to deduct up to 20 percent of your qualified business income, however, it will be subject to restrictions based on your taxable income and restrictions that can apply if you have a higher income level. This deduction is also available on income from real estate investment trust dividends and qualified income from publicly-traded partnerships.
To help in lowering your company tax bill, it is best to speak with an experienced accountant to discuss if your business is the correct type of entity. Even if you believe your business is too “small” to be a corporate entity, remaining a sole proprietorship or partnership means that you and your business are the same, so if your businesses profits are high, this means it will be taxed based on the individual income tax brackets. Changing your business entity to a corporate entity separates you from the business, meaning your business pays the corporate tax rate which would most likely be lower than the individual tax rate. This means you will instead take a paycheck from the business, which would result in pushing you to a lower income tax bracket and paying less on your personal taxes as well.
If you do not yet have a business location and work from a space in your home, you are able to claim a Home Office Deduction to help lower down what you owe to the IRS. This deduction can be used by both renters and home owners, but there are certain requirements that have to be met in order to claim this, such as the business space must be used regularly and exclusively for your business. This means if the space you conduct business in is also the playroom for your kids then you will not qualify. The business space must also be the principal place where you conduct your business; you can still handle some business projects outside of the office and still qualify as long as the home office space is used on the regular.
If your company owns a vehicle or you use any vehicles for work purposes, you will be able to deduct any expenses that are associated with business purposes, even if the vehicle used is a personal vehicle. As of right now, you are able to deduct 54. 5 cents per mile driven. It may not seem like a lot, but within a short period of time this deduction can really add up and save your business a lot of money on taxes. Your vehicle can also help you save if you also used it for medical purposes, such as driving to and from your doctor’s or dentist’s office, or if you used the vehicle for any charitable purposes.
Another way your business can reduce its tax liability is by making charitable contributions whether you decide to donate money, old equipment, or unused inventory. Making charitable donations are all considered deductible expenses, but there are stricter reporting rules on charity deductions if your company makes a charitable contribution(s) that exceed $500.
Your business can also take advantage of tax deductions on your equipment. Section 179 of the IRS tax code will allow you to deduct the full purchase price of business equipment and/or software, which can be fully deducted for up to $1,000,000 rather than having the depreciation over the course of seven years.
Another tax advantage that your business can claim to help with the cost of taxes is the Bonus Depreciation. Under the new tax law, if you had acquired and placed a qualified property into service after September 27, 2017 and before January 1, 2023 you can receive the 100 percent bonus depreciation for the first year only.
There are a variety of deductions that your business can utilize to help in keeping the amount of taxes you owe lower. It is best if you hire an experienced small business accountant who will be able to sit down with you and create a tax plan for the year. During the tax plan the accountant will go over if you are the correct type of business entity for tax purposes, what deductions you will be able to claim, and help you set up a payment system for your taxes. Lowering you company tax bill can be one of the best and most relieving feelings, having a small business accountant will help you to reduce the amount owed on your taxes and make sure they are paid on-time.