Tax planning, determining the various options, recording your transactions, etc. can be tiresome. And so, many small business owners ignore and procrastinate tax planning until it is that time of the year. As any business owner, you sort to minimize your expenses by maximizing your profits, including your taxes liability. Unfortunately, far too many entrepreneurs are unaware of the tricks and ploys available to them and end up paying more than they need to. You don’t have to be a CPA to take advantage of tax-cutting tips. Here are a few tips regarding Tax planning for small business.
Accounting method
Every owner calculates their business transactions differently. Average using the accounting based on when money is received instead of when an order is placed and counts amount when they are paid rather than the commodity or service ordered. This is the cash method of accounting. Whatever the approach, smart entrepreneurs can tactically adjust their outlook, reporting their annual income based on cash receipts to reduce their end-of-year revenues.
A simple case of where this plan can be helpful is when a business expects to add recruits every year. Considering this and the other plans for the year, it is wise to anticipate that the net income will be low and so will be the tax bracket, so any work completed during the end of the current tax year should be considered when payments arrive to tax the income at a lower rate. Contrasting this, if you expect to climb into a higher tax bracket next year, it makes sense to collect your costs when you are still in a lower tax bracket.
Changing your taxes structure
One of the initial decisions you made while starting the business was if you want to operate as a sole proprietor, partnership, LLC, S, or C corporation. But along the way, the way you planned it, may no longer be applicable. There is no reason for you to stick to the same structure. After the change brought by the Tax Cuts and Jobs Act of 2017 (TCJA) changing the highest corporate income tax rate from 35% to 21%, sole proprietorships, LLCs, partnerships, and S corporations can realize notable tax savings by opting to be taxed as a C corporation. This makes sense if the owner is taxed at a high tax bracket. If that is the case, all fill out and file Form 8832. Just make sure that the taxes saving you can benefit from are worth more than the previous structure.
Tax breaks
With all the changes made by the TCJA, one such impactful change is a valuable tax break for pass-through businesses whose income is passed through for taxation as their owner’s income, known as Qualified Business Income deduction. For those eligible, it is a maximum of 20% tax break on income they make from their business.
There are several limitations on this, especially when it comes to specified service trade or businesses whose owner either makes too much capital or relies specifically on employee’s skill. The year 2019 brought some changes withsingle business owners of SSTBs shifting out at $160,700 and was excluded after their income exceeds $210,700, while those who are married, filing a joint return transit at $321,400 and were excluded at $421,400. To have a deeper insight, use Part II of Form 8995-A.
Retirement Account
One way to lower your taxable capital is to contribute to a retirement account. It lowers your business’s tax liability and also ensures a more secure future. As a small business owner, either a 401(K) plan or a Simplified Employee Pension (SEP) plan will be ample to have your back.
PPP loan
Offered by the government in the face of the COVID-19 crisis, many small businesses took advantage of the PPP loans. The loans seem attractive as they are remissible, giving businesses breathing room in these dire circumstances. The IRS issued Notice 2020-32 in April 2020, which stated that despite the fact of forgivable loans being excluded from gross income, the costs associated with the money received cannot be deducted. This rubs out the tax benefit initially offered because losing the employee and expense deduction increases the business’ income and profitability.
After reviewing a lot of entrepreneurs, providing small business tax planning advice, we started a small business tax preparation services firm to provide these stratagems. We give all kinds of assistance and let you in on hidden overlooked gambit to save your taxes.
Small Business Tax Preparation Services:
Your tax returns can easily be prepared by our experienced income tax consultant, allowing your in-house staff to focus on more productive areas, instead of such laborious work. Our prowess goes beyond any individual, corporate, partnership, and fiduciary taxes preparation. On average, we can send fully prepared tax returns in 12 to 24 hours of submission. Our services include,
- Collecting your tax records
- Keeping track of your deadlines
- Filling out IRS and other tax forms, and many more
As a lawful taxpayer, it is critical to uphold the laws and pay the necessary taxes. That said, you are allowed to leverage all the available tax deductions under the provision of the law. By smart work and crafty planning, you can save a considerable amount of capital
