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As a small business owner, you can save several questions. For instances:
- What tax is calculated?
- How much do you need to pay?
- What can be done to reduce the taxes?
Most people can answer the first two questions; the last question is the most difficult to answer. This is why we have taken this opportunity to highlight the avenues you use to reduce liable taxes.
Most small business owners are not a part of the Sales Tax Nexus and hence, have no idea how the taxation works for the business. However, if you are one of those business owners, here is a small guide – what is sales tax nexus. This will help you understand the tax Nexus.
As we have already said, most business owners have no idea about the taxation process and overpay. So, we thought of creating content that will help the business owner identify the tax reduction avenues.
How To Reduce Taxable Income For Small Businesses?
When the financial year comes to an end, the small business owners are most overwhelmed; after all, that is when they need to file for the taxation. If you are paying your taxes for the first time, it can be stressful and what’s worse is that you can end up overpaying your taxes.
Thankfully, there are several strategies you can use to reduce the tax liabilities as a business owner. Consider the following strategies to reduce tax liabilities.
1. Start A Retirement Plan
Setting up retirement funds for yourself and your employees is a great way to reduce your taxes. However, when you follow this strategy, ensure that it is a qualified plan and will surely help you with your tax reduction.
Talk with your business lawyers and find retirement plans that the IRS supports. If you can do thorough research, you will find many options based on your business and goals.
2. Hire Family Member
One of the best ways to reduce taxation is to hire family members. The IRS allows the organization with a variety of options to reduce the payable taxes. One of those options is hiring family members.
With the family members in the business, you can pay them a lower marginal rate. This eliminates the taxes that are paid to their children.
3. Take Tax Credits
Tax credits are the federal way of encouraging the business that is meant for the greater good. For example, you can tax credit for hiring employees, providing access to disabled employees, and health coverage to the employees.
Most of these services come from general business credit. So, it is quite extensive and holds the possibility to qualify under some of its terms. Talk with your accountant to know more about the tax credits.
4. Buy Equipment For Depreciation Deduction
Businesses can take write off on equipment purchases. These write-offs are taken for the first year when you own and use the equipment. Furthermore, it also comes with a bonus depreciation that adds extra benefits to the assets. You can have a better idea about the depreciation deduction after talking to your tax preparer.
5. Deduct Travel Expenses
This is one of the most common avenues for tax deduction but is easily overlooked by small business owners. No matter what kind of travel you are doing, if the travel is related to the business, the travel cost can be exempted from the taxes.
Furthermore, you can get the maximum benefit if the business owner can mix personal travel with business travel with justifiable business purposes.
Reduce Taxable Income
When it comes to paying taxes, you can reduce the liable taxes by taking advantage of the breaks and opportunities out there. However, you must have a complete understanding of the taxation and explore new watts to reduce your liable taxes. This is especially important when you enter 2022.
The last two years have not been what you would call high revenue-generating years. Using these tax-saving strategies will save you a lot of capital to invest in your business growth.