Tips For Self-Employed Owners to Reduce Taxes
Taxes are important and compulsory financial charges imposed by the government on individuals, businesses, or legal companies. The government uses it to fund different public expenditures at the local, regional, and national levels. It is impossible to run a business and not think about your taxable income — failure to pay your taxes when due is an offense punishable by law.
Income tax is one of your biggest headaches when running a profitable business. Income is not only the money you earn in salary or wages. It also means money from other sources such as properties, business profits, and other bonuses. Income tax is a direct tax that a government deducts from the income of its citizens.
Sorting taxes can be very stressful for any individual, especially for a small business owner. You have a lot going on in your business already, and the last thing you want to do is figure out how much of your hard-earned money you have to pay to the government.
You have to think of taxes every day as you do business because your financial situation is directly tied to figuring out how much money you have to yourself and can pump back into the business. Paying more than you need to in taxes can negatively affect your goals. Ignorance of tax laws and the leeway the government offers regarding taxes can cause you to spend more than your competition on taxes, making you lose ground in a competitive market.
Of course, it is your responsibility to pay tax, but when as a small business owner, you’re paying more than 40-50% of your income on tax, then you’re doing bad business. Instead, you can use the tax code to your advantage by creating jobs and creating alternative energy sources.
The following are six tips to help you reduce your tax as a business owner
Don’t cut corners
This is the first and most important rule of the tax playbook. While you don’t want to pay all your money to the government as tax, you shouldn’t go about reducing the bottom line the wrong way. You should run your business as if you will have to show your tax returns publicly in years to come. No matter what you do to reduce your tax, you should do things the right way from the start. Don’t think you can cut off sales tax, make your employees independent contractors, or even leave your income without cleaning them. It is better to remain on the right side of the law rather than run afoul of it because these things may come back to haunt you.
Evolve with the times
Tax laws are constantly evolving, and if you don’t stay updated on the latest systems, you may just be paying more than you should. For instance, the 2018 tax and cuts changed the tax rate, among other things. It lowered the rates on income tax for individuals, while it increased or remained unchanged for others. If you can afford it, your best bet is to hire a tax expert or accountant who knows these things and how they change over time.
When the 2017 tax cuts were made, many tax accountants and specialists advised their clients to update their withholdings to avoid paying more at tax time. In the long run, it usually pays off to spend a little more upfront to hire a tax expert to handle these things, even if you have some understanding about taxes and the rates. It is simply a no-brainer to find someone with a lot of experience who is up to date with bill changes and all the information you need to make the right decisions.
All your expenses can be deducted if certain perimeters are in place
There are so many expenses you incur from business that can be written off in your tax calculations, such as the car you drive, where you live, office location, transactions on food, clothes, among others.
For instance, food. Even if it’s a date with your wife, you can discuss business over your meal, talk about your income goals for the coming year, and how the business can grow. It can count as a business expense, and you can write it off.
Traveling in your car – you can write off expenses you incur at conferences and seminars as part of your education. You can spend most of your time on the trip on business, or you could go with your employees and have a retreat. However, while writing off these expenses, you should keep number one in mind – do not cut corners.
You could depreciate the cost of equipment depending on the kind of equipment over 5 to 10 years of the lifetime of that equipment. You can bring the depreciation into the year you bought it instead of spreading it over the next five years. You can also decide to spread the depreciation cost over the next few years. These are things you should discuss with your tax expert before making any decision to make sure you’re doing the right thing.
Acquisition of other businesses and trademarks
These are considered non-tangible assets for your business. Depending on its lifespan, you can write them off or depreciate them over the next 5, 10 years.
If you want to move from a small business to a large business, you have to pay attention to these things around taxes. It is also important to state that being economical on your taxes does not imply anything about your character. You may still decide to give the money you saved to charity or family. You may even reinvest it into your business.
Finally, the government also defers to your judgment to make the most of these remittances through schemes that reallocate some of the tax collected to business owners and entrepreneurs.
Don’t be ignorant, learn for yourself
Yes, it is a great idea to hire a tax expert, but it is not an excuse to disregard learning about taxes yourself. No one cares more about your business’ financial position and success than you. You could have a great tax accountant or expert, but you cannot put all of your trust in those people without learning about tax yourself. These experts cannot see every aspect of your business; you have to know these things yourself. You can read books or take courses on tax laws.
If you’re a small business owner and you’re paying more than 40-50% on tax, it’s not good for your business. There are so many things you could do to lower your tax rate. A lot of things have changed about taxes in the United States and you have to be educated about these things. You need to be thinking about tax implications on all income and on all money that goes out of your accounts.
As much as you can reduce the amount you pay on tax, you cannot completely eliminate it as a citizen of any country. But with proper planning, you can reduce your income tax and keep more of your money to yourself and your business. Do not forget to consult your tax expert to give you the best advice to follow on how to reduce your tax.