Paying taxes can be a time-consuming and expensive prospect for businesses of all sizes. Nevertheless, there are some helpful steps that any business owner can take to reduce the amount of time and money it takes to complete the process.
Apply for Credits
There are many possible tax breaks available to small businesses that can reduce the amount of liability when tax season approaches. For example, subsidized retirement accounts or health insurance policies can result in serious savings through related tax credits. Furthermore, certain entities such as partnerships and sole proprietorships allow owners to utilize child tax credits and other personal tax benefits to reduce the business tax burden.
Keep Detailed Records
Another effective way to keep a company’s tax liability as low as possible involves keeping track of the various expenses that can be claimed as deductions at the end of the year. Although not every expenditure made by a business owner will qualify for a deduction, many purchases such as business dinners and transportation can be used to offset some of the tax bill as long as there are proper receipts and documentation to prove they were justified expenses.
Record Net Operating Loss
When a business is in its infancy, the likelihood of operating at a loss is extremely high. Therefore, it is common for the total revenue to be lower than operating expenses during any given year. While this might seem like a bad thing on the surface, it can be extremely beneficial at tax time. Carrying these net operating losses over from one year to the next will result in deductions from the overall tax bill totaling up to $50,000. Since the pandemic ushered in even more lenient rules about losses, it is possible that a business can benefit from this deduction to a greater extent than what was previously available.
Deduct Home Office Expenses
Since many entrepreneurs conduct much of their business from home, the existing tax code allows for a certain amount of tax deductions for related expenses. Specifically, a business owner can claim $5 times the footage of the home office space up to 300 square feet. Another option involves deducting a portion of the household expenses that can be calculated for use by the dedicated office space.