As many as 55 of the largest companies in the United States paid zero income tax for three years from 2018 to 2021. Their tax strategies even made them richer by a few million from the tax rebates a polar shift from small and medium businesses that often end up paying fines in addition to the income tax.
Minimize Tax Liability & Maximize Profit:
It is not just the revenue that separates small and large successful businesses. While revenue can be scaled it may not translate to profit when business losses hundreds of dollars in taxes. Especially for a small business where every dollar counts, not optimizing the tax can thwart the growth and even push it by a mile. This is often the case with a small business where the employee wears many hats and end up losing their hard-earned business income.
Minimizing tax liability directly maximizes profit, give you an edge over the competition and can transform your long term business prospects to set you up for smooth and seamless growth. However either due to lack of time or funds most businesses fall short of employing the right tax strategies and let go of profitable tax opportunities. If you are one of them then this blog is for you.
If you are a small business that is only starting, you can reduce your tax liability with a DIY approach if you can implement the 5 simple tax tips:
1. Choose the right tax status: Businesses usually decide their structure and report the same to the authorities and the structure of your current business impacts how taxes are levied. Corporations, Sole Proprietorships, Partnerships, S Corporations Limited Liability Company (LLC) – each of this business structure have their set of tax rules and regulations.
You might be leaving tax dollars on the table by misclassifying your business. Whatever may be the reason business can change their structure to align with their current position and unlock new tax opportunities.
2. Pick the right tax deductions:Now that you have identified the right business structure one must carefully pick the right tax deductions available to minimize the liability. Some of the common tax reductions that one can claim include – travel expenses, home office deductions, charitable contributions, employee expenses and use of a business car and more.
Maintaining accurate bookkeeping records is critical to leveraging the right deductions to ensure an effective bookkeeping service. In case you fall short of resources or expertise you can outsource bookkeeping to remote accounting firms that specialize in outsourced bookkeeping services.
3. Consider deferring or accelerating the income: Higher-income result in higher taxes and one way around here is to defer the income until the next calendar year. Since the tax is levied when the payment comes through, one can delay the due date or delay invoices to make this happen in cash-based accounting. In the accrual-based accounting, it can be delayed for the next year, after checking with the controller services.
Similarly, if the business is booming to place you in the higher tax bracket in the next year, one can also accelerate the income where you swiftly collect payments to balance the tax rates for this and next year.
4. Contribute to retirement account & plan your business purchases: Setting up a retirement account making contributions healthy practice that further reduces the taxable income. We usually advise our clients to set up a 401k account before year-end and make contributions.
Similarly one may further benefit by the planning of business purchases to offset the taxable income. Equipment, machinery, office supplies are tax-deductible and their purchases can be timed to cut down the taxes.
5. Leverage payable debts: Business loans are taxed on interest payments depending on their structure is also a much better provision to reduce the taxes. In addition to this businesses are also given provision to write off the bad uncollectable debts suffered by businesses over the year. So comb through your AR reporting to identify bad debts that are no longer collectable and strike off to reduce the total income and in turn the total tax.
While the above 5 tips are simple ad straight forward when efficiently strategizes they can provide significant tax savings. However every business must be equipped with accurate bookkeeping, and accounting services to implement these tax-saving strategies. If you are a business that lacks either of these functions, hiring a remote accosting firm like Outsourced Bookkeeping is the best choice.
Outsourced Bookkeeping – Bookkeeping, Accounting & Tax Preparation and Consultation
As a remote accounting firm specializing in Bookkeeping, Account Payable, Accounts Receivable, Outsourced Bookkeeping also provides specialist tax consultation and preparation services. Our specialist knowledge in bookkeeping and accounting services gives places our resources in the perfect position to unlock new tax opportunities for small businesses.
If you are looking to reduce your tax burden for maximized profit and ROI, you can leverage our tax preparation and tax consultation services here: https://outsourcedbookeeping.com/