Paying Too Much In Taxes? 3 Clever Ways To Reduce Your Business' Tax Burden
ShareThe tax rate for small business owners operating as a sole proprietorship hovers around 13 percent. The amount you will have to pay at the end of the year depends on a lot of factors, including your net profits, your personal income and the number of tax-saving measures you take. If you notice that your income and projected profits have the potential to put you in a high tax bracket, you should take advantage of all the tax-saving measures you can in order to reduce your tax debt. Following are three clever ways to reduce your business's tax burden.
Donate to Charity
You can deduct gifts that you give to charitable organizations as long as you itemize them on your tax returns. While there is a limit to how much you can donate, it's relatively high. For example, if you give to a public charity, you can deduct up to half of your contribution base.
In addition to donating to charities, you can lower your tax burden my making your employees' lives better. Gifts, such as holiday turkeys, are considered business expenses as long as you keep the cost lower than $25 per employee.
Maximize Tax Credits
While most tax credits benefit big businesses, there are some that small businesses can take advantage of. For example, if you have fewer than 25 employees and you pay at least half of their health insurance premium, you may be eligible for a small business health care credit. You may also receive a tax break for making your business handicap accessible or for establishing a retirement plan for your employees. Since regulations and guidelines regarding tax credits change annually, it's important that you consult with a tax professional who is knowledgeable about the credits available for your particular type of business.
Elect to Deduct
When you start up or expand your business, you can deduct most of the expenses involved during the first tax year, which will reduce your tax burden. However, you have to elect to deduct such expenses by filing a paper election form with your tax return. Otherwise, you will not be able to deduct them until you sell or close the business.
As you can see, there are several ways that you can reduce your business's tax burden. If you're not sure what rules apply to your business, be sure to consult with a tax adviser that has experience filing taxes for businesses that are similar to yours.
To learn more, contact an accounting firm like Hy Appelbaum CPA.