Tax-Saving Tips For Small Business Owners
Tax time can be a stressful time for small business owners. There’s so much to do – from marketing and payroll to keeping up with recent tax law modifications. With so much on your plate, it can be easy to become overwhelmed.
Receiving tax advice from experienced professionals is key for reducing your tax burden and getting the most out of your business. Here are a few tax-saving tricks to help your company remain ahead in 2022.
1. Donate to Charity
Donating to charity is an excellent way to support your community and make a difference in the world – plus, it could save you tax dollars!
Charitable donations are generally tax deductible, provided you meet certain criteria. Cash donations of up to 60% of your adjusted gross income can be deducted; other items like stocks or real estate may be deductible at 30%.
Before you donate to your favorite nonprofit, take the time to research its mission and impact. Use a charity research tool like GuideStar or Charity Navigator to identify organizations that meet your standards for effectiveness and efficiency.
2. Donate to a Nonprofit
Donating to a non-profit is an efficient way to save taxes. Furthermore, it helps your business build positive public perception in the community.
Donors often feel good when they donate to charity, and it can be an easy way to make the world a better place. But before you donate any funds, be sure you select the right nonprofit organization.
In addition to selecting the ideal charity, you’ll want to guarantee your donations are documented with written records. Doing this will enable you to prove your gifts and avoid IRS fines.
Most organizations utilize various techniques to solicit donations, such as email and letter fundraising. Some even employ phone calls and matching gifts.
3. Deduct Business Expenses
Small business owners can deduct a variety of expenses related to their operations. This could include employee salaries, equipment and supplies, rent, utility costs, legal and accounting fees and more.
Maintaining accurate books and records to back up deductions is the essential requirement for all taxpayers in order to prevent penalties or audits. This step should be taken by everyone to ensure accuracy in their taxation filings.
If you own a home office, the IRS allows a deduction based on either actual costs or prescribed rates multiplied by allowable square footage of your space. The maximum allowed deduction is $5 per square foot up to 300 square feet in area.
Travel expenses related to your business can also be deducted. This includes airline tickets, hotel stays and other miscellaneous costs.
4. Deduct Personal Expenses
Small business owners can save taxes by deducting personal expenses related to running their company. But before claiming a deduction, make sure the expense is reasonable under the circumstances and an ordinary and necessary cost of doing business.
If you use a car for work purposes, be sure to log the miles driven and have records proving its use for business. Furthermore, the IRS standard mileage rate can help determine how much tax deduction is available.
Another popular deduction for small business owners is interest costs on loans used primarily for business purposes. This can be advantageous if you’re just starting out and need money quickly to get your enterprise off the ground. It may also be beneficial to use a credit card that charges only for business-related purchases.
5. Contribute to a Retirement Plan
Entrepreneurs have the advantage of contributing to a retirement plan tailored for small businesses. These plans offer tax-exempt benefits that may enable you to save more than what would otherwise be available.
Depending on the plan, you can include employees in contributions and take advantage of matching contributions from your employer. In certain instances, you may even have the option to contribute directly to your own account.
In addition to 401(k) plans and traditional pensions, small business owners have the option of profit-sharing plans (PSPs). These arrangements enable employers to allocate a percentage of company earnings onto employees on either a quarterly or annual basis.