Whether you are an existing taxpayer or are starting now, good income tax preparation is the key to saving more money from your income. With proper tax planning, you can make the right investments to enjoy tax benefits under various Income Tax Act sections. Moreover, you can also enjoy great tax returns from all your tax-saving options and assets in the longer-run.
Being a small business owner is very expensive and not an easy job. You have to make crucial financial decisions every now and then. Every penny counts in small business as business owners are living on razor-thin margins and fighting for market share. But possessing and operating a small business is even more expensive when you pay more taxes than you owe.
Nobody presumes business owners to be a tax professional as you do have businesses to run. But it’s essential to know where you can save money in order to spend that money back into your business. Here are eight money-saving tax tips to keep in mind for your business. Have a look!
Hire a Professional Tax Preparer
Tax management is not a simple task. Accumulating your year-end tax and submitting tax return can be a great problem for you if you are not familiar with the process. A professional accountant can keep you away from this liability by taking care of this for you. They will make sure you follow all the regulations for small businesses tax preparation and pay the right amount of tax between the obligatory deadlines.
Moreover, there are many ways you can reduce your tax amount. A professional accountant can help you with that as they are familiar with these methods. Don’t overlook this as it can save a lot of money and you can invest this free up money to develop your business.
Utilize Tax Filing Software
This is a great way to prepare yourself for the tax if you are a small business owner. Although this recommendation is for the small business owners, it’s also applicable to the tax-savviest entrepreneurs. Tax filing software offers tax protection for small business owners that they may not be able to afford otherwise.
Software like TaxSlayer, TurboTax, and H&R Block can assist you prepares and files your tax return online. Moreover, these software backs up all your tax filing with accuracy and ensure maximum tax returns. With all the facilities like the accuracy of your tax return, compensation of any fees or penalties these tax filing software make tax hurdle very easy. I’ve personally used every one of this software. I tend to prefer them in the order I’ve listed them above.
Pay for Your Retirement Now
An independent worker’s taxable income can be decreased by putting extra money toward a customary retirement account. The money will not be taxed until the funds are withdrawn at the time of retirement. Small business owners under the age of 50 can subsidize up to $5,500 per taxpayer to a traditional or Roth IRA. Those who are over 50 years of age can fund to $6,500 toward their retirement savings.
Deduct Your Car Expenses
Deduction of your car expenses is a great way to save your taxes. So, when you’re deducting expenses, calculate what percentage of the time your car is being used for work. From there, you can apply that percentage to your overall car expenses.
There are two types of tax deduction available for car expenses. One of them is the IRS’s standard mileage rate, and the other one is your actual car expenses, including insurance, gas, and repairs. Figure out which one makes the most financial profit before filing the tax so you can make the most of your savings.
Invest in You and Your Family’s Health
Medical insurance and medical health check-ups are part of the regular expenses you experience. If you are spending money on medical insurance or a medical check-up, you can get a handsome tax deduction. There are other medical-related expenses that are eligible for tax deductions. They are:
- Medical expenses of a dependent
- Medical expenses of a disabled person
- Medical expenses of listed diseases
Deduct Your Home Office
A lot of small business owners have their offices at home. Unfortunately, many of them don’t realize they can subtract expenses related to their home office. These deductions include insurance, mortgage interest payments, repairs, and utilities like internet service.
You have to determine what portion of your home is being used as your business office. You can use the tax software to calculate the numbers. Both homeowners and renters can be benefited from this deduction.
Keep an Eye Out for Carryovers
There are some deductions that may not be fully used in one tax year and are eligible to be carried over into next years. These deductions include items like capital losses, net operating losses, home office deductions, and charitable contribution deductions. Track all these elements, so you don’t forget them from one year to the next.
Take advantage of Penalty Relief If You’re Eligible
Despite following these tips, you may incur an IRS penalty. If that happens, you need to identify whether you’re eligible for penalty relief.
Some penalties, such as penalties for failing to file a personal tax return or to pay on time, are eligible for penalty relief. People who can be eligible for relief include those who tried to follow the legal requirements but were unable to meet them due to situations beyond their control, or those who were able to resolve a problem pointed out in their penalty notice. Not everyone in these two groups qualifies for penalty relief. But it’s worth finding out whether you do and if you can get the money back in your pocket for an honest mistake.
You don’t need to make small business owners more financially tricky than it already is. So the best practice is to observe all the deductions throughout the year and investigate your options in tricky situations. This will help you find alternatives that you didn’t know existed and savings you can really use to develop your business.
You may also like: 5 Bookkeeping Tips For Small Businesses
About the Author
Abdul Quddeus is a CPA, CGA, and founder of MAQ CPA Professional Corporation. He helps small business owners, professionals and individuals save their hard-earned money on taxes and let them free up their time to concentrate more on core business by providing tax planning and compliance, bookkeeping and accounting services, Corporate Tax Return in Toronto & Scarborough.