Nobody loves paying taxes, and if you’re a small business owner, you know that every dollar counts — especially if you’re just starting out.
Entrepreneurs face an array of challenges, from a shaky economy to supply chain issues and natural disasters, but working with a savvy and experienced advisor will contribute to your success. By implementing some effective financial strategies, you can legally minimize your tax liabilities and free up valuable resources for reinvestment and growth.
Planning, organizing, and being proactive give you an advantage and helps reduce your tax bill. Let’s explore how expert advice can help your small business pay fewer taxes and reap the benefits of practical tips and insights.
Understanding Liabilities and Deductions
While everyone needs to pay the federal tax piper, you may also be responsible for state and local taxes, depending on your location. This is your tax liability before any deductions or withholding.
When you first set up your business, selecting the most suitable business structure is crucial. Each structure has unique implications, whether you operate as a sole proprietorship, general or limited partnership, limited liability company (LLC), S corporation, or C corporation.
Consulting with a financial advisor or tax professional can help you evaluate the pros and cons of each option, taking into account factors such as liability protection, ease of administration, and tax advantages. They can assist you in choosing the most favorable option for your brand.
One of the key benefits of financial planning for small businesses is the ability to identify and maximize tax deductions. There are many deductions that owners can leverage to cut their tax debt.
Here are some of the most common:
- Utility bills
- Business and health insurance (more on that below)
- Lease or rental payments
- Auto and travel expenses
- Certain charitable contributions
- Supplies, furniture, and software subscriptions
- Marketing costs
- Other taxes, such as sales, real estate, and state unemployment
- Retirement savings (we’ll loop back to this too)
For your benefit and to attract talented people, offering in-demand benefits such as health insurance, a retirement plan, or an IRA is essential. But group insurance plans may be too expensive for some smaller operations.
A qualified small employer health reimbursement arrangement (QSEHRA) is a good option for those who want to offer health care perks without breaking the bank. QSEHRAs allow business owners to reimburse their employees for medical expenses and receive tax breaks in return.
General liability insurance premiums, as are payments for workers’ comp, commercial property insurance, and cybersecurity liability insurance, are tax-deductible.
Investing in the Future
Implementing a retirement plan not only helps secure your financial future but also offers attractive tax benefits.
By making regular contributions to these plans, you can reduce your taxable income, grow your retirement savings, and potentially defer taxes until you withdraw funds during retirement (when you may be in a lower tax bracket).
Engaging a skilled financial planner can help you select the most suitable retirement plan for your business, taking into account factors such as the number of employees, contribution limits, and administrative requirements.
It’s vital to make savvy decisions about reinvesting in your organization. Starting in January, you should create a strategy for planning your large purchases so you can reap the tax benefits as soon as possible.
You may be able to utilize particular tax credits and incentives that are commonly overlooked. It’s never a good idea to leave money on the table. Your company could be eligible for various credits, such as a Work Opportunity Tax Credit, the Retirement Plans Startup Costs Tax Credit, an Empowerment Zone Employment Credit, or a New Markets Credit.
Suppose you’re playing the stock market to build capital for your small business. In that case, you might want to learn more about the qualified small business stock exclusion (QSBS), which allows investors and owners of small or medium size businesses or startups to exclude up to 100% of U.S. federal capital gains tax upon selling specific stocks. Unless, of course, your company provides services such as accounting or financial services.
Find the Right Partner
Navigating the complexities of lowering your taxes can be challenging. Getting pro guidance from a financial advisor specializing in small businesses can help you maximize the credits and incentives that apply to your enterprise or sole proprietorship and lower your tax liabilities.
Tax laws and regulations are subject to change, so staying informed and partnering with a highly knowledgeable advisor or tax professional is crucial.
By proactively managing your tax situation through effective strategizing, you can create a stronger financial foundation for your small business and pave the way for long-term growth. Minimize your risks and chart a course for success — schedule a complimentary consultation today!