Careful tax management is critical to the long-term success of any business. Without oversight, the cost of taxes can become staggering. If you’re looking to save money, here are a few tactics to minimize your business tax obligations.
Employee Benefits Plans
Several fringe employee benefits qualify as tax-deductible expenses. The IRS has limitations on the total amount of savings a business can claim from fringe benefits, and most incentives must be available to everyone to qualify for a deduction. Not all fringe benefits are deductible. For instance, you cannot deduct fringe benefits paid out in cash.
By offering fringe benefits, you can potentially reduce your business taxes by a substantial amount. Some of the benefits you can provide to reduce business taxes include:
- Employer-paid health insurance
- Financial support for dependent care
- Employee discounts
- Paying for employee parking
- Employee gym memberships
- Assistance with retirement planning
Restructure Your Business
It may be worth exploring a business restructure to reduce your taxes. For example, a limited liability corporation (LLC) is a pass-through tax entity, meaning individual members are taxed instead of the company itself. Each state has rules regarding how each entity is taxed, so you’ll want to do some research before restructuring. Several other business structures could be more appropriate for you. The most popular business structures are:
- Nonprofit: Most nonprofits are not required to pay taxes on their income. However, a nonprofit entity must pay taxes on any amount paid to an employee.
- Limited Liability Partnership: An LLP is simply a type of partnership involving more than two people. Similar to an LLC, members of an LLP are taxed instead of the LLP itself.
- Sole Proprietorship: Also known as individual entrepreneurship, a sole proprietorship is a business structure that is owned and operated by one person. Individuals with this structure often pay more in taxes since there is no clear distinction between business income and personal income.
- Corporation: Businesses may structure themselves as an S or C corporation depending on their tax situation. With an S corporation, taxes are passed through to members similar to an LLC or LLP. A C corporation files a separate tax return.
Independent Contractors & Sole Proprietors Should Monitor Adjusted Gross Income
Your adjusted gross income or AGI represents the amount of income you earned minus any deductions. Accurately tracking your adjusted gross income throughout the year can make it easier to estimate the amount of taxes you will likely owe. Finding ways to lower your AGI by qualifying for more adjustments will reduce your taxable income, and in effect, lower your tax bill. There are various ways to reduce your AGI for tax reasons, including:
- Donate to IRS-approved charities
- Maximize contributions to your retirement account
- Find more itemized deductions
- Defer revenue and accelerate expenses
- Contribute to a health savings account
Whenever possible, businesses should seek to take advantage of any tax breaks or opportunities that are available. Talk with your CPA or other financial professionals to ensure you’re receiving all possible deductions. Tax advisors and experienced accountants are always up to date with the latest changes to tax codes, so you’ll never miss out on a chance to save money.