By Analytix Editorial Team
Reducing taxable income becomes very important for small businesses wanting to save every earned dollar. To keep the revenue and reinvest the money back into business, you will have to opt for tax-saving strategies. There are several ways to deduct and reduce taxable income. In addition, there are tax exemptions and tax credits, which can be utilized to reduce taxable income.
It is advisable to keep track of all your financial resources and manage accounts and books effectively to reduce taxes. This is essential to minimize workload when reporting and filing taxes.
According to our experts and market research, the below tips can help small businesses reduce taxable income.
Implementing and integrating the latest accounting and tax software can help you identify tax errors and even minor and missed deductions. The software helps reduce taxable incomes and aids in filing accurate taxes. According to an IRS report, less than 1% of online tax returns have errors. With paper returns, 21% of taxpayers face an error. For example, you can use TurboTax or Tax Act for higher productivity and accuracy. These tax applications are easy to use and work with. You can also review other tax software on the Internet. Moreover, it helps small business owners save time and focus on other tasks.
One of the easiest ways to reduce taxable income is by adding funds to your retirement account. As a small business owner, you should add funds to your 401K with a pension plan to put away close to $150,000 per year.
Some of the retirement plans are:
The IRS (Internal Revenue Services) provides several options to reduce taxable income. Hiring a family member (spouse, children, etc.) for your business allows you to save taxes. Taxes are eliminated if you pay income to your children too. However, you will have to justify an appropriate source of income from your business to meet IRS guidelines.
Growing your business and adding new customers through marketing can help you to reduce taxable income. This is a win-win situation for small business owners. These days, it is imperative to invest money in digital marketing to reach more customers and grow your company faster. IRS has allowed a tax deduction for marketing expenses. If you want to save taxes and increase your revenue, investing money in marketing is a good idea indeed.
Providing a healthcare plan for you and your family can help reduce taxable income. In addition, putting funds into a Health Saving Account (HSA) for emergency healthcare needs can save taxes. It is advisable for businesses and employees to use HSAs for tax savings. You should be eligible for a high deductible health plan to reduce taxable income under this option.
Small businesses have an excellent option to reduce business taxes by showing travel expenses. Small business owners can justify personal travel for business purposes to save on travel expenses. Business travel expenses are fully deductible at the time of filing taxes. However, your private trips can’t be included in this.
Did you know you could reduce taxable income for home-office work?
Filing and reporting accurate taxes on time is essential to meet IRS guidelines. In addition, this avoids penalties and late payment interest. If you manage your business finances and need help to reduce taxes and file them promptly, it is advisable to get help from tax professionals. They have specific strategies and tactics that help you pay reduced taxes.