Planning ahead, filing your business taxes on time and claiming the right deductions can make a world of difference for your company. But most small to medium business owners get overwhelmed by all the tax rules and ever-changing details from year to year. And it’s understandable, considering the U.S. Tax Code is 70,000 pages long. But don’t worry, your virtual accounting firm is here to shed some light on some of the top business tax savings tips, helping you navigate the tax issue a little more smoothly.
Tax Deferred Retirement Plan
One of the best business tax saving tip is to take advantage of tax deferred retirement plans. It allows business owners to claim a deduction without having to give up the money spent for the tax benefit. There are many ways to accumulate tax-deferred savings including an IRA account or an employer-sponsored retirement plan such as a 401K if you don’t own your own business. You can also accumulate money inside a whole life insurance policy or fund a Health Savings Account. Your virtual accounting firm reminds you though, that the point here is to put time on your side. Withdrawing your savings ahead of time will cost you a 10% penalty tax, in addition to ordinary income taxes.
Depreciation Deduction and Bonus Depreciation
This specific section of the IRS code allows business owners to deduct the cost of equipment, software, and these days property (due to the Small Business Jobs Act of 2010) on income taxes as an expense, instead of the cost being capitalized and depreciated. Read more details about the depreciation deduction.
The New IRC Section 199A
This new tax law allows the self-employed business owners, and other pass-through entities that are looking to reduce the effects of double taxation, to lower their income and make them eligible for a 20% tax deduction. The new business tax saving tip can benefit sole proprietorships, partnerships and S corporations. Some trusts and estates may also be eligible. The 199A section can also allow for an extra 20@ of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnerships (PTP) income. For more information on the 199A, your virtual accounting firm suggests you read up on the IRS details.
Hiring Independent Contractors
If you’re business is more seasonal, or looking just for a bit of extra help, hiring independent contractors may be the way to save. Full time employees come with extra costs, such as Social Security and Medicare taxes, retirement plans, health insurance, life and disability insurance and so on. But when you hire independent contractors, they’re the ones responsible for paying their taxes and reporting their income through 1099 forms when they surpass the $600 income. As a business owner, you’ll have to have them fill out a W9 form for their information and tax id number.
If you use your car for business or even just to get to the workplace, you can deduct the expenses associated with driving, even if you’re using your personal car. Your virtual accounting firm reminds you that you can deduct 54.5 cents per mile, which can really add up. You can also deduct mileage for medical purposes and miles driven for charitable purposes.