Tax planning strategies is a critical part of ensuring a business is successful and profitable, no matter the size. There are several different strategies a company can use to minimize its tax liability and maximize its profits.
Small Business Tax-Planning Strategies
Here are a few small business tax planning strategies business owners might implement:
1. Consider a Tax Status Change
Sole proprietors might be able to save money by switching to a limited liability company (LLC) or S corporation tax status. LLCs and S corporations have more tax benefits than sole proprietors, so switching can help protect the owner’s personal assets.
To switch the tax status, the owner will need to file a new tax return using the new tax status. They might also need to file additional paperwork with the state tax agency.
2. Loss Carry Back Scheme
If the small business has suffered a loss, it might be able to carry the loss back to offset profits in previous tax years. This can help the business get a refund for taxes it has already paid. To claim a loss carry back, the owner will need to file an amended tax return for the previous tax years. They might also need to file additional paperwork with the state tax agency.
3. Leverage Coronavirus Tax Relief
If the small business has been affected by the coronavirus pandemic, it might be able to take advantage of tax relief measures put in place by the government.
The Coronavirus Aid, Relief and Economic Security (CARES) Act and the American Rescue Plan Act both provide tax relief for small businesses. The CARES Act provides a payroll tax deferral, while the American Rescue Plan Act provides a payroll tax credit.
4. Deduct Assets to Charity
If you’re looking to reduce taxable income, you might want to consider donating assets to charity. You can deduct the fair market value of the assets you donate from your taxable income.
To claim a deduction for asset donations, you’ll need to itemize the deductions on your tax return. You’ll also need to keep records of the assets you donate, such as receipts or appraisals.
5. Set Up or Contribute to a Retirement Accounts
The business owner can set up a retirement account for themselves or their employees. Retirement accounts can help the owner and the workers save money on taxes.
There are several types of retirement accounts, such as 401(k)s and IRAs. The type of retirement account you set up will depend on the business’s structure and your employees’ needs.
Owners can deduct contributions they make to the employees’ retirement accounts from their taxable income. The employees can also deduct their contributions from their taxable income.
6. Track Every Receipt With Professional Tax Preparation Software
Keeping track of the business expenses can be time-consuming and tedious. But it’s important to keep track of your expenses to deduct them from your taxable income.
One way to keep track of the business’s expenses is to use accounting software. The best professional tax software can help you track the company’s expenses and prepare its financial statements with ease.
There are many different accounting software programs available, so you’ll need to find one that meets your needs.
Conclusion
There are a few key tax planning strategies that small businesses should keep in mind to minimize their tax liability. These include staying up to date on tax law changes, knowing which deductions and credits are available, and planning for estimated taxes. By taking these steps, small businesses can save themselves a lot of money come tax time.
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