Paying taxes is an unavoidable part of running a business. But this doesn’t mean you have to pay more than necessary. Most business owners tend to overpay simply because they do not know about available tax-saving options.
By understanding the correct deductions, tax credits, and financial planning techniques, you can legally reduce your tax burden while keeping your company compliant with tax laws.
So, if you are looking for ways to save on taxes this year, here are eight tax-saving tips from Dabney Tax and Accounting Services that every business owner must need:
1. Maintain Accurate Financial Records Year-Round
One of the major mistakes business owners make is organizing their financial records only when the tax filing period is about to end. Lack of bookkeeping can result in losing valuable deductions or suffering penalties for incorrect filing.
Here is how you can keep financial records well organized:
- Accounting software, such as QuickBooks, Xero, or FreshBooks, are some good tools for automatically recording income and expenses.
- Store the digital and paper copies of all receipts supporting tax deductions.
- Reconcile bank statements monthly to catch any discrepancies before they escalate into bigger issues.
If you think bookkeeping is too time-consuming, hire the best tax consultant in Houston.
2. Separate Business and Personal Expenses
Mixing business and personal expenses is another major mistake that can create big problems during tax season. The IRS requires businesses to separate personal and business expenses.
To keep things in order:
- Open a different business checking account and a business credit card.
- Pay yourself a salary instead of just randomly withdrawing money.
- No personal purchases from business accounts.
Separating finances also helps justify expenses if an audit is ever initiated. If you are still unsure about how to set up your business’s financials, you are advised to consult Dabney Tax and Accounting Services.
3. Take Advantage of Business Tax Deduction
Some business expenses are tax deductible, helping you lower your taxable income. For example, if you are renting some space for an office, rent and utility expenses will be fully tax-deductible. Advertising and marketing expenses such as website design, social media ads, or business cards can also be deducted. Business-related travel expenses, such as flight tickets, hotel stays, and entertaining a client with dinner, will also qualify as deductions, though only partially.
Paying employee salaries and providing benefits further reduces your tax burden. Moreover, equipment purchases like desktops, office furniture, and software subscriptions qualify for tax deductions, making managing business costs easier.
Hiring a tax return preparation service in Houston, TX, will help you keep all the money in your pocket by preventing you from overpaying taxes.
4. Maximize Your Contributions Towards Retirement
Contributing to a retirement plan is one of the most proven ways to save for the future and decrease taxable income. Business owners can take advantage of the following tax-advantaged retirement plans:
SEP IRA: Intended for self-employed individuals and small businesses, this type of IRA generally allows for a maximum contribution of 25 percent of income.
SIMPLE IRA: This option is best for companies with fewer than 100 employees. It offers lower contribution limits, but the administrative requirements are relatively straightforward.
401(k) Plan: This plan is slightly more complicated than the others, but it is good if you have employees and want higher contribution limits than SEPs or SIMPLEs.
These plans provide a tax deferral on your contributions to avoid higher tax rates. Dabney Accounting Firm in Houston might help you choose the best plan.
5. Save More with Home Office Tax Deductions
If you have a designated area in your home specifically for business, you can use the home office deduction to balance some of your home expenses against taxable income. The area must be your main place of business to qualify.
The deduction may be calculated using either the simplified method, which applies a standard rate per square foot, or the actual expense method, which allows you to deduct a percentage of those expenses based on the size of your home office. Consulting a tax advisor can help you choose the option that maximizes your savings.
6. Hire Independent Contractors Whenever Possible
Full-time employees require payroll taxes, benefits, and insurance costs. Hiring independent contractors instead of employees would be a great way to save money.
Some benefits of hiring contractors are as follows:
- Lower Taxes: You do not pay taxes for Social Security, Medicare, or contractor unemployment.
- No Employee Benefits: You are not liable for health insurance or paid time off.
- Flexibility: You can hire contractors based on your needs rather than keeping a permanent staff.
7. Take Advantage of Tax Credits
Tax credits reduce taxes directly rather than deductions, which reduce taxable income. Some tax credits that are worth mentioning are as follows:
Small-Business Health Care Tax Credit: This applies to you if health insurance is provided to employees.
Work Opportunity Tax Credit (WOTC): If you hire certain groups, such as veterans, the WOTC applies to you.
Research & Development Tax Credit: R&D tax credits apply to your business for investing in creating new products, software, or technologies.
Working with Dabney Tax and Accounting Services helps you benefit from available tax credits.
8. Defer Income and Accelerate Expenses
Shifting income and expenses between tax years is a common strategy to reduce taxable income. If you think you will have more income next year, delay invoicing until January so income will be counted for the next tax year. Accumulate expenses before the end of the year to decrease taxable income for the current tax year.
Final Thoughts
Tax planning is not just about filing returns; it is about making decisions that work in your favor regarding reduced tax liabilities and maximized profits. Implementing these eight tips will maximize tax savings and keep more of your hard-earned money while complying with the law.
For specialized assistance, consider contacting professional accounting services for small businesses in Houston, which can guide you through tax-saving tactics.
