10 Ways to Reduce Your Small Business Tax Liability

by | Nov 6, 2022 | Bookkeeping & Accounting

As a small business owner, you’re always looking for ways to save money and reduce your expenses. When it comes to taxes, there are a number of strategies you can use to minimize your tax liability. Here are 10 of the most effective ways to reduce your small business tax liabilities.

1. Employ Family Members

If you have family members who work in your business, you may be able to take advantage of certain tax breaks. For example, you may be able to claim childcare credit if you have children under the age of 13. You can also take dependent care credit for certain elderly family members.

2. Hire Veterans

Veterans can qualify for many different tax breaks, including the Work Opportunity Tax Credit (WOTC). To take advantage of this credit, you must hire a veteran who meets certain criteria, such as being unemployed for at least four weeks.

3. Use Tax-advantaged Accounts

There are a number of tax-advantaged accounts that can help you save money on taxes. For example, you can open a Health Savings Account (HSA) to pay for qualified medical expenses. You can also open a Flexible Spending Account (FSA) to set aside money for child care, medical expenses, and other qualified expenses.

4. Invest in Energy-efficient Equipment

If you purchase energy-efficient equipment for your business, you may be eligible for a federal tax credit. The amount of the credit depends on the type of equipment you purchase and the energy savings it provides. Also, you would be investing in sustainable equipment which would depreciate slower and have a longer lifespan.

Under Section 179 of the tax code, you can deduct the cost of certain business equipment and property. This deduction is particularly beneficial for small businesses, as it allows you to deduct the cost of equipment in the year it is purchased, rather than depreciating it over time.

5. Build a Retirement Fund

Contributing to a retirement fund is a great way to reduce your taxes. You can deduct up to $53,000 from your taxable income if you contribute to a 401(k) plan. If you’re self-employed, you can deduct contributions to a SEP IRA.

6. Focus on Healthcare

Healthcare expenses are one of the largest deduction categories for small businesses. If you offer health insurance to your employees, you may be able to deduct up to 100% of the premiums from your taxes.

7. Get Incorporated

Incorporating your business can provide significant tax advantages. C corporations are taxed at a lower rate than sole proprietorships and partnerships. In addition, shareholders of C corporations can exclude up to $75,000 of dividends from their taxable income.

8. Maximize Deductions

There are many deductions available to small businesses, so make sure you take advantage of as many as possible. Common deductions include office supplies, travel expenses, and vehicle expenses . Many small businesses are eligible for special deductions, such as the home office deduction and the self-employment tax deduction. Be sure to take advantage of all the deductions that apply to your business so that you can minimize your tax liability.

If your business has a net operating loss (NOL), you can carry the loss back two years or forward 20 years to offset income in those years. This can provide significant tax savings. Consider getting help from an expert to stay on top of all the deductions.

9. Charitable Contributions

Contributing to charity is a great way to reduce your taxes while also helping out causes that are important to you. You can deduct charitable contributions from your taxable income up to 50% of your adjusted gross income.

10. Stay Current on Tax Law

The tax code is constantly changing, so you must stay up-to-date on the latest tax law changes. This will ensure that you’re taking advantage of all the deductions and credits that apply to your business. You can stay current on tax law changes by reading tax publications and subscribing to newsletters from reputable tax sources.

Reducing your small business tax liability doesn’t have to be difficult—there are several strategies you can use to minimize your taxes. By taking advantage of deduction opportunities, utilizing tax-saving strategies, and staying current on tax law changes, you can ensure that your business pays its fair share but no more. If you need any help, our team of small business tax experts can assist you. Give us a call today.

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