There are strategies for reducing small business taxes that have to be set up before the end of the year. Timing expenses and income are good examples. And, there are strategies that can be done at any point throughout the year. Funding a retirement program is an example. There are many possible ways to reduce your taxes when you examine the IRS code. To take advantage of the best ways to reduce small business taxes consider outsourcing your bookkeeping and tax prep to Exigo Business Solutions in the Kansas City area. Read on to learn how we can help you reduce your small business tax burden.
The 2018 Tax Cuts and Jobs Act (TCJA) provides a Qualified Business Income (QBI) deduction. This allows for as much as a twenty percent reduction for qualifying business income for businesses set up as pass-through entities. This applies to sole proprietorships, S corporations, and partnerships that pass income and deductions through to owners, partners, or shareholders for reporting on their individual or joint tax returns.
You can claim this deduction along with ordinary deductions for business expenses. You will qualify if your individual taxable income is less than $157,500 or less than $315,000 if you file jointly with your spouse. Even if you earn more than these amounts you may qualify depending on special rules related to the nature of your business. At Exigo Business Solutions we can tell you what tax breaks you are eligible for.
Retirement plans for your employees can help you reduce your small business taxes. It has to be a qualified plan which we can help you set up. Plans recognized by the IRS include IRAs and defined contribution plans like a 401 (k) and 403 (b)
Setting up and funding a retirement plan for yourself and/or your employees can save you money on taxes. Make sure it's a qualified plan so you can take advantage of those tax savings. It must be one that's recognized by the IRS to allow deferment of taxes on earnings until the earnings are withdrawn. They include IRAs and defined contribution plans such as a 401(k) or 403(b).
Talk to us before setting up your plan as you will need to consider the goals of your business as well as your specific needs.
The government sets up tax credits to encourage you to do things that they believe are for the greater good. Tax credits for hiring employees, providing disable employee or public access to your business, giving health care coverage to employees, or going green are all examples. Generally these fall under a general business credit but you need to ask us to check it out to see to what degree your quality and reduce your small business income by doing things that will help your business.
Your business can write off purchases of vehicles, machinery, equipment, and even real estate in some cases. You will want to decide if you should take the first year that you use the equipment which is accelerated depreciation. Section 179 and bonus depreciation are the most frequently used depreciations in this case. The maximum depreciation under Section 179 is currently $1 million. This can apply to some real estate purchases as well as machinery and equipment.
An extra benefit comes with bonus depreciation. This tax break can be as much as 50% to 100% if the item in question is placed in service before January 1, 2023. Talk to us at Exigo Business Solutions about profitable ways to reduce your tax burden via depreciation.
If you give gifts to customers to promote your business, you can deduct up to $25 for each person gifted. This applies to both vendors and customers. The only exception is items that cost less than $4.40 and have your business name on them.
You can also deduct the cost of business entertainment but events need to have a direct relation to your business.
This has to do with taking income in the coming year to reduce your taxes for the current year or taking expenses in the current year instead of the coming year. We can help you decide how to set this up. Over the long haul you need to make sure that you are not taking a “bonus” in one year only to see an excessive tax burden the following years.
We can help you review current expenses before the end of the year to decide which to prepay and which to defer until the coming year. Stocking up on supplies is a commonly overlooked way to increase your expenses for the current taxable year.
Make a point of reviewing customer accounts before the end of the year if your business has an accrual accounting method. If there are customers who are likely never to pay what they owe, consider them off as bad debts. You can deduct the amounts owed directly from your business income. These bad debts can include both unpaid purchases and unpaid loans that you have made to employees, vendors, or clients.
The end of the year is also the time to review your customer accounts if your business operates on the accrual accounting method. First, find those customers who aren't likely to pay you. You can write off the amounts they owe as "bad debts" and deduct these amounts from your business income to save on taxes.
Two recurring problems for small businesses that want to reduce their taxes are these. They do not know where to look to find tax savings. Or, they try taking deductions for which they do not qualify. In the first case, you will be missing out on legal deductions. In the second case, you will be dealing with the IRS and paying back what you owe. When you outsource your bookkeeping to us at Exigo Business Solutions we can help you with effective and profitable tax strategies that will take advantage of every legal way to reduce your small business taxes.
Contact us at Exigo Business Solutions for the best ways to reduce small business taxes.