10 tips for small businesses on saving taxes
By admin at 29 December, 2006, 1:38 am
Taxes account for the largest share of a small businesses’ expense. However, if you’re a little informed then you can save a fair amount of your hard-earned income from going to the taxman and instead you can plough them back into your business.
1. Go corporate
You may definitely want to consider incorporating your business if you are the sole proprietor or in a partnership. This will reduce your own liability and as a corporation your business will also be exempt from self-employment/FICA tax.
2. Donate
When you donate, your donations are tax deductible. All you need to do is to furnish receipts at tax-time.
3. Have an idea of your P&L statement
If you are sure of making a profit, you can spend money to build business assets and buy equipments. These business expenses are exempt from tax.
4. A home-office for your small business
If you work from home, you make yourself eligible for many deductions such as electricity and rent for the space being used as your office. Your overheads will also be low since you are working from home.
5. Maintain your records and pay your taxes on time
You need to be well-organized with your books in order so that in case you are audited you do not waste time reconciling your statements. Also, having your records ready will let you pay your taxes on time so that you do not incur late fees and penalties.
6. Invest in “short life assets”
Check for assets that allow you to claim capital allowances for the entire cost of the item if you sell it off for scrap before its useful life is over.
7. Choose your business car carefully
You can get tax relief for environment-friendly cars with emission levels below a certain specification.
8. Your family as your staff
If you can show your family as your staff, and you definitely can, you are not going to lose money paying an outsider and you also get a tax deduction on it. In fact, if your dependent is below 18 years of age, you can pay him up to $5,200 for which he will not have to medicare taxes, unemployment taxes, and FICA.
9. Have a retirement plan ready
There are many retirement plans such as individual small business 401K, IRA, SIMPLE, SEP and Keogh. Put your money in these to avail tax breaks and to defer some of your earnings to secure your future.
10. Make some purchases before the financial year ends
Chart up your requirements for 2007 and make the purchases before the financial year
11. Defer your income
Pay all your dues for the year and postpone charging your clients. These two activities should reduce your tax liabilities.
Be aware of all the deductions that you can claim as a small business owner. Business-related travel, dinner, and entertainment expenses, real estate tax, mortgage interest, health insurance, liability insurance, etc.
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