Tax Filing Strategies for Small Businesses

If you are working on a regular income, tax filing comes with various challenges known and unknown. With the taxes that the federal government levies on you, you can maximize your tax deductions and make sure that you pay only what you have to. The taxes that you have to file depends on the type of business you have.

There are four types of taxes: income tax, excise tax, self-employment tax, and employers’ tax. A wisely planned tax filing strategies help you take greater advantage of the credit and deduction system legally available to you. While tax avoidance planning is legal, tax evasion is entirely illegal. Small businesses usually fall trap to a higher amount of tax payment because of neglected tax planning meetings with their accountants.

Tax Filing Strategies

Here are a few tax filing strategies that you should be aware of in order to avoid burning holes in your pockets.

1) Maximize business expenses

Under the Tax Cuts and Jobs Act of 2017, 50 percent of the total food and beverage cost associated with business meetings can be deducted from the taxes that you pay. Also, for tax years 2018-2025, this deduction expands to involve the expenses incurred to provide meals to employees for employee convenience, although these costs should be listed separately.

You inevitably need to document the following while applying for the deduction:

  • Your relationship with the people or person you dined with.
  • The place location and date.
  • The total cost or bill of the dinner.

It would help to save you receipts and jot down the details about the details related. To qualify for the deduction, you should prefer a small place or a restaurant instead of places like a bar or a club. A deduction of as much as 100 percent is also possible at times when social events are held for the employees.

2) Claiming the health care tax credit

The health care tax benefit is for benefiting the smaller business that houses less than 25 full-time employees and is paying an average salary of less than $50,000 annually. The business should also be providing at least half of the employees with health insurance premiums. Before applying for this, it is advisable for you to check your eligibility for the same. 

3) Deducting the charitable contributions

Corporate Social Responsibilities, donations, and charity made could also benefit your business in a tax deduction. The expenses can also include volunteer expenses and stock contributions. You can also claim charitable donations on your corporate tax return if you are a corporate company.

4) Home office expenses

The simplified IRS guidelines for home office expenses provide home-based small business and freelancers some provisions to deduct five dollars per square foot for the area used from your home for office work. The maximum limit for the same entails to 300 square feet. The area should be the principal place for business work and should be regularly used to qualify for this type of deduction. Certain practices that can make the tax season less traumatic to avail home office expense deduction are as follows:

  • Use your residential address and telephone number on your business cards.
  • Keep a guest logbook to keep track of business meetings and guest visits to your office.
  • Retain the receipts and paid invoices.

The non-residential properties, including roofs, fire safety equipment, alarm and security systems, ventilation, and air condition expenses, can also be included according to the update in the Tax Cuts and Jobs Act of 2017.

5) Depreciation benefits

The long term business investments are considered for the deduction due to depreciation. It can include heavy machinery costs, investment made for purchasing vehicles for business purpose travel, etc. These are usually done for long-term and costlier investments to get reimbursed over the item’s entire useful lifetime.

6) Educational investments

Timely training and skill development programs are a common practice in organizations. These educational expenses are fully tax-deductible. The only requirement for this is that the course, workshop, or skill training should maintain professional expertise and add to your employees’ knowledge base. Educational expenses qualifying for deduction are:

  • Seminars and webinars
  • Books from the industry
  • Subscriptions to publications
  • Courses or fieldwork training expenses

7) Investments or borrowed money and loans

All the investments made for the business, in terms of credits taken, qualify for a tax deduction. It can be considered up to the extent that matches your income from the business after that invested amount.

8) Start-up expenses

As much as $5000 could be deducted for start-up business ventures in the latest tax year. The expenses can include everything from travel and training costs or branding and advertising your new business in the market. 

9) Deduction on property purchase

Section 179 property, includes tax deduction up to $500,000 of eligible business property. This deduction is possible in terms of the full amount in the year your business started, hence aligning with those businesses that recently moved in or for those planning to acquire a business property.

10) Retirement Contributions

If you are a company contributing to the retirement plans bearing individual retirement accounts, it could help you reduce your taxable income. But, take a note that your total IRA income cannot exceed your total income of that particular year or annual maximum contribution, depending on whichever is the least amount. 

11) Foreign income exclusion from taxed income

For all the American citizens with business clients from abroad, or business bases anywhere outside America can, under typical circumstances, exclude the foreign earned money from the taxable income. To classify under the same, you must have your tax home based anywhere abroad. 

Some Key Takeaways:

It is always a wise decision to consult a tax professional for effective tax planning and handling. Eventually, planning your business likewise, there are many strategies we can help you with to save your hard-earned money. We provide support for not only big and small businesses but individuals seeking better solutions. Connect with tax strategies to get further insights on tax saving strategies.