Taxes can be extremely taxing for small business owners. Because you're already the CMO, CEO, CIO, and everything else, the last thing on your plate is to pay Uncle Sam more of your hard-earned business money. Thankfully, there are a number of different tax strategies you can use to reduce your taxable income and save money—and the team at the MB Group can help. Let's take a closer look at some of the top strategies you can use to save money and lower taxable income for small businesses.
Employee Benefits That Are For the Benefit of All
Your employees are the heartbeat of your business, and it's vital to ensure they are well compensated. However, increasing their salary can trigger additional employment costs for your business. But did you know certain fringe benefits allow you to compensate them without the associated taxes? A few of the top tax-exempt employee benefits you can offer include:
- Group term life insurance
- Long-term care insurance
- Employer-sponsored health insurance
- Disability insurance
- Dependent Care assistance
- Health Savings Accounts
- Educational assistance
- Employee-convenience meals
- Transportation benefits
Start a Retirement Plan
While being a small business owner offers a range of benefits, one of the biggest downsides is the lack of a retirement plan. So, why not start one? There are several different retirement account options available that will help you save for your future, help your employees save, and compensate your employees without the burden of taxation. For instance, a single-participant 401(k) plan allows you to stow away up to $57,000 in total retirement contributions. These plans include options, such as
- 403(b) plans
- Simplified Employee Pension (SEP) Plan
- Roth IRA and IRA
The experienced team at MB Group can work closely with you and guide you to the most advantageous retirement plan offering for your business.
Plan to Succeed with Year-End Planning
First things first, if you're looking to learn how to reduce taxable income for businesses, it's all about strategic tax planning—which should occur throughout the year. However, you may be able to achieve significant savings by focusing on the end of the year. There are a number of different ways to reduce your taxable prior to the end of the year.
Strategically Time Purchases
You may be able to lower your taxable income by purchasing fixed assets and claiming immediate depreciation. At the same time, you may be able to claim Section 179 deduction and write off the entire purchase price of certain business assets in the year they were purchased.
Weaponize Your Accounting
Accounting is more than a collection of historical numbers—it can be used as a business asset. If you use a cash basis of accounting, you can delay billing for completed projects or products at the end of the year until you actually receive payment. This will help lower your taxable income in the current year.
Leave Bad Debt Behind
We all have clients who are slow payers as well as those who we don't expect to ever receive payment from. If you have account receivables in the latter category, you may be able to write this uncollectible debt off and claim the Bad Debt Deduction. Just like all other deductions, the Bad Debt Deduction will lower your profits as well as tax liability.
Is Your Structure Optimized?
The way your business is structured can have significant tax implications. And if you're looking to learn how to reduce taxable income for your small business, it's a great place to start. For example, if you are currently a contractor, freelance writer, etc., and doing business as a partnership or sole proprietorship, it may be time to restructure your business.
Many small business owners opt for doing business as a limited liability company (LLC). This type of business entity is considered a "pass-through entity", which opens the door to ample benefits. For example, LLCs can choose to be taxed as S corporations. With this structure, you'll pay yourself a salary that will be taxed like any employee's salary. The rest of the income from the LLC is passed through as a "distribution" that isn't subject to FICA taxes. For many small business owners, opening an LLC and filing taxes as an S corporation can lead to significant tax savings. And it can help prevent you from owing self-employment taxes on a substantial part of your income.
Contact MB Group to Learn How to Reduce Taxable Income for Small Businesses
As a small business owner, you know all too well that there are only so many hours in the day. Because of this, you can't do it all—and this is a reality that most successful small business owners embrace. When it comes to your taxes, it's not an on-again, off-again venture. Understanding the complicated tax laws and regulations for small businesses requires experience and expertise — both of which are on-demand when you partner with MB Group. At MB Group, we are a team of highly-seasoned small business CPAs and tax planners. We will work closely with you to show you to reduce taxable income for your small business, so you can experience the type of efficient growth you desire. Contact our team today.