5 Tax-Saving Tips for Small Business Owners

Filing taxes can be a headache for many small business owners – from managing expenses all year to navigating your tax liability, there’s a lot to consider.

“How can I save money on my taxes?” is perhaps the biggest question for small business owners. This article outlines the top tips to ensure your business is getting the biggest tax break it can get and how to better track your taxes for a smoother tax season.

The most important thing you can do as a business owner is to keep a record of all your business expenses – and stay organized. Not keeping track of all your receipts or shoving them in a file folder will only cause more work and frustration in the long run. Use software to digitally upload all your receipts so you can keep all your expenses organized by the time tax season rolls around. This saves you significant time and money by having everything you need already sorted and makes it easier for a tax professional, who is likely to charge you more if you bring in a file box full of paper receipts.

By already having everything in one place, you’re less likely to miss out on potential deductions and filing your taxes will take significantly less time.

There are many tax deductions small businesses can qualify for, and these deductions can make a significant difference in your tax liability. Tax deductions can change each year and some you may not even be aware of. Your tax professional or tax software can help determine what you qualify for and find lesser-known tax deductions for business owners. For instance, businesses who make energy-efficient upgrades to their office space may qualify for energy-saving tax breaks.

Here are some common small business tax deductions:

Section 179

This tax deduction allows for the cost of certain types of business purchases to be deducted on income taxes, and with an annual limit of up to $1.08 million, this means the cost of the property doesn’t have to be capitalized and depreciated. Many physical purchases qualify, like machinery and equipment, office furniture, computers, or vehicles.

Bonus depreciation

Like Section 179, bonus depreciation allows you to claim up to 80% of the purchase cost of business-related equipment purchases with no annual limit on deductions. Bonus depreciation and Section 179 can be used together in the same year, so you can get an even bigger tax write-off.

While Section 179 and bonus depreciation are two common tax deductions, there’s many others you still may qualify for. Consult with your tax professional or your preferred tax services to determine what you can deduct from your taxes.

The proper accounting solution saves you time and money for your business. Whether it’s hiring a tax professional or using tax software, find one that works for your business. Some small business owners prefer to hire a tax professional because it allows them to focus on other areas of the business and brings peace of mind that a professional is handling all the extensive forms. Alternatively, there are many options for tax software that work just as well as a real tax professional and make it easy for a business owner to file their own taxes. These programs ask you the same questions a tax professional would ask you so you’re still getting the best possible tax break.

Is your business registered correctly with the IRS? An incorrect business classification can cost you and increase your tax liability. The right business classification affects the amount and kind of record-keeping you are required to do and the tax amount you pay.

If your business employs other people, check to ensure you have the correct business organization classification. This can be an S corporation, C corporation or Limited Liability Corporation (LLC). All these classifications require their own tax return filings and have different rules so it’s important to make sure you’re classified correctly. If your business has grown or changed significantly in the past year, double check that your current classification reflects your business today.

Tax season isn’t just an end-of-year obligation. Planning for next year’s taxes and businesses expenses can set you up for success in the long run and often save you time and money. Tax planning for the year ahead should include both improved recordkeeping and planning your strategy for better tax optimization.

To improve your game plan for next year, reflect on what went well and what could have gone better this year. Was it difficult to categorize all your expenses? Was it difficult to calculate your total income? Updating the systems that you have in place can make it easier throughout the year to manage your income and expenses.

Tax management is a crucial part of your business and one that shouldn’t be overlooked. By maintaining your records and staying organized, using the right tools – whether that’s a tax consult or software – and ensuring your business is classified correctly, you’ll be set up for an easier tax filing season.