Since the 1990s, the world has become fascinated with the trend of “entrepreneurship.” In other words, many people are into the concept of becoming self-employed. The benefits are simple, i.e., you can make more money when it’s your business and enjoy the independence of not having a boss. However, many business owners find their commercial endeavors unsuccessful. Surveys show that 20% of businesses in America will fail within their first year. However, there are some other ways to make a profit as well.
For instance, many exciting tax avoidance strategies exist for small business owners today. All the methods mentioned here are legal and have been set up by the IRS to help your startup grow. So, a business owner can consider these strategies to help their business become more profitable. This article has categorized all these strategies into three portions. You can implement the first portion quickly; the third takes time.
With that note, here are some tax avoidance strategies for small business owners in the States:
Tax Avoidance Strategies For Small Business Owners #1
- Become an LLC: Do you know that structuring your business as an LLC has many advantages, such as tax breaks? For example, in 2017, the QBI deduction was set up for LLCs in which you legally deduct 20% of your income. In other words, structuring your corporation smartly can lead to many IRS-approved tax breaks. Call a lawyer to know how you can structure your business.
- Use startup deductions: The IRS allows new startups to deduct $10,000 in startup costs and deduction expenses within their first year. In other words, if your business was founded last year, you are eligible for these deductions. Therefore, you should leverage these fantastic tax avoidance strategies for small business owners in 2023 to help your organization succeed.
- Maintain proper records: You shall see that maintaining accurate records can help you justify many business expenses as taxable ones. That’s why first-tier suggestions talk about maintaining business records properly. You don’t have the IRS to blame you for some legal deductions just because you didn’t have all the proper documents. Hence, hire a bookkeeper.
Tax Avoidance Strategies For Small Business Owners #2
- Track travel costs: You can always write off your business travel expenses. This write-off also consists of the cost of traveling by car, train, or ferry. In addition, as of 2022, business meals and even lodgings are 100% deductible! Again, this scheme works if you have maintained records correctly and aren’t taking a vacation in disguise.
- Hire family members: Almost every expert would tell you to hire family members as one of the best tax avoidance strategies for small businesses. For example, you may employ your kids to save your income from taxation. Similarly, business owners can hire their spouses as their salaries won’t be subject to FUTA. So, your family members can help you avoid taxes.
- Home office deductions: Establishing a business domestically (at home) can help you write off these costs as domestic workplace deductions. For instance, you can claim deductions for the square footage you use as a workplace. However, it would be best if you dedicated that portion of the house to business purposes and nothing else. It doesn’t have to be your entire room.
Tax Avoidance Strategies For Small Business Owners #3
- Deduct charity assets: Donating money to charity will help you save money on taxes and enhance your company’s reputation. Deduce assets to charity to display how much your brand cares about the community. We recommend business owners pick a charity that resonates with the values of their brands. That’s how you help society and yourself as well.
- Consider business losses: Monitor your business losses, and you can easily avoid taxes. You should track how much money you’ve lost this quarter and deduct it from your income. So, your overall deductible income shall decrease, making you pay fewer taxes. This technique is one of small businesses’ most profitable tax avoidance strategies.
- Buy business equipment: Moreover, the IRS allows business owners, as per Section 179, to make some deductions on immediate business equipment. This equipment includes all vehicles, furniture, and software programs used for commercial operations. That’s how you can avoid taxes on business operations and make your commercial activities tax-free now.
Is tax avoidance illegal?
No, you’re confusing with tax evasion. Tax evasion is a crime. However, these tax avoidance strategies for small business owners are not illegal.
What sort of taxes do I pay?
As a business owner, you pay property tax, divided tax, payroll tax, and even income tax. You can search for them further online.
How much taxes do I pay annually?
Experts believe business owners pay almost 20% in taxes, depending on their business type.
How often does a small business pay its taxes?
The IRS requires most small business owners to perform quarterly estimates of their taxes if these taxes are over $1,000. Unfortunately, it means paying your taxes thrice a year.
Can I do my taxes without hiring a bookkeeper today?
Yes, you can do your taxes right now. However, it’s always better to hire a professional bookkeeper.
In short, you learned that avoiding taxes isn’t hard when you know the right tricks. The IRS has allowed small-sized companies to save money on taxes via legal means. Realize that evading taxes is wrong, and people are imprisoned for it. But avoiding taxes is something the IRS allows as it involves all the ways an organization can do to save money. Saving money on taxes will increase the productivity of your organization. So, consider all the tax avoidance strategies for small business owners mentioned above.