Business owners at any size know first-hand that taxes can take a lot out of your business. Although you will undoubtedly owe some amount of tax no matter what size your business is, the tax code allows for some strategic tax savings as long as you operate within the law. Your CPA is the best authority for tax-saving techniques, but you may also want to present your CPA with some ideas of your own. Here are a few to get the wheels turning:
Tax-Saving Strategy #1: Contribute to a retirement plan
Making an extra retirement contribution before filing your taxes can help offset your business income. Depending on your retirement plan, you may not personally pay taxes on the contribution until you retire, if at all. Before doing this though, you should make a call to your CPA to confirm the extra contribution is within your means, allowable as a deduction, and to ensure it saves you enough to warrant the extra work.
Tax-Saving Strategy #2: Make sure to account for all deductions
Go through all of your receipts from the past tax year and set aside any that could potentially qualify as a deduction. If you have questions on what might qualify, we have a blog post about what qualifies as a business deduction. Look out for travel-related expenses, repairs on office equipment, gifts for employees, etc. Once you’ve put together a full list, present it to your CPA. Your CPA may have additional questions about the qualifications of certain deductions so be prepared for that.
Tax-Saving Strategy #3: Think about hiring contractors rather than employees
Payroll taxes are one of the larger expenses for businesses and all business owners should take this into consideration each time they commit to a new employee. One way businesses have been able to manage their expenses and scale their operations is by hiring independent contractors rather than employees. But be aware that there are certain rules about what constitutes an independent contractor versus an employee.
Tax-Saving Strategy #4: Update your depreciation schedule
If you have significant assets that you use for your business, a work vehicle or expensive machinery for example, or have added several new assets, it is worth the time to have your CPA change your depreciation schedule. This is a more complex calculation, which is why you should leave the numbers to your CPA, but it is a strategy that is well worth it, considering the amount you could save.
Tax-Saving Strategy #5: Change your business structure
Your business entity structure has a big impact on how your business pays taxes. This is something you likely considered when you first formed your company, but if not, you can re-evaluate it now. Meet with your CPA to see if your current business structure is right for your business.
Tax-Saving Strategy #6: Look into federal and state tax credits
There are quite a few tax credits that you may qualify for. For example, there are federal tax credits available for businesses that are accessible to disabled people. There are federal tax credits offered to businesses that make an effort to go green and make energy-efficient services. There are also generous state tax credits (including Virginia, up to 65% of the donation amount) for making donations to certain pre-approved charities. These tax credits are not widely known and are definitely something you’ll want to bring up with your CPA. Your CPA can help you review your services, the benefits you offer, and the purchases you’ve made over the past year to see if there’s anything that might qualify your business for tax credits.
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