Today in many industries, businesses are looking for ways to reduce their taxes. This can be a difficult task for any business, especially when you're operating at the company level. You might find that your tax return is higher than you anticipated and that you're spending more time dealing with tax forms and deadlines than focusing on your company's financial potential.
Two of the most significant types of taxes that a business must face are federal and state income taxes. If you operate primarily in one state but have some operations or products offered elsewhere, this may make your business susceptible to taxation by federal and/or state agencies (depending on where your place of the source is).
Ways to Reduce Small Business Taxes
Taxes and small businesses go hand in hand. Small businesses often need to pay taxes quarterly with estimated quarterly tax payments. However, with the right strategies, small business owners can reduce their tax liability and free up more of their hard-earned cash for other uses.
Read on for five ways you can reduce your small business taxes so you have more time and money to focus on making your business a success:
1) Track Spending Wisely
Keep track of all your important income and expenses by using accounting software or an accountant. Do not rely on estimates or rounding up numbers without any guidance from professional help. Many small businesses are not required to use double-entry accounting.
2) Invest in the Right Assets
To receive tax deductions for investments, you need to be able to prove that the investment has a useful life of more than one year. This means you must understand what type of asset is appropriate for your business, and how long it will remain useful to your business.
For example, if you are starting a retail store that sells expensive clothing, then it makes sense that you would purchase expensive mannequins or other display fixtures for your store. However, if you are starting an Internet-based business, then it may make more sense to invest in software or website hosting rather than buying expensive computer equipment.
3) Open a Business Checking Account
Opening a business checking account may seem like an insignificant task. However, it is important to open an account to start building your business's credit history. This can help you in the future when you are applying for loans or other financial assistance. It also gives you more control over your money and allows you to build your business credit history without taking out personal loans.
4) Raise Capital
To raise capital for your business, try joining a community bank or credit union or look into raising revenue through crowdfunding sources such as Kickstarter. Crowdfunding is appropriate for many types of businesses but requires some planning and professional assistance.
5) Consider Tax Sheltering Strategies
If you are not comfortable with the complexity of tax strategies, then opt for a bottom-line approach to reducing your taxes. Keep in mind that there are legitimate ways to reduce your taxes by taking the standard deduction, itemizing only certain deductions (such as mortgage interest and charitable contributions), or claiming state and local tax credits.
To learn more about how you can reduce your small business taxes, call us at GSP Chartered Professional Accountant Professional Corporation. We are here to help you get the most out of your business relationships.