7 Ways Small Business Owners Can Reduce Their Tax Bill

The survey conducted between July and August of this year found that inflation was the top concern, cited by half of the respondents. As you work with your tax advisor, consider whether the eight strategies below could help you this year and potentially farther into the future. One of the reasons why entrepreneurs find the Limited Liability Company business structure attractive is that it gives them flexibility in dividing ownership among the LLC’s members. How you determine LLC ownership percentages can be based not only on members’… A company might request to use an assumed business name instead of its legal name for conducting business.

Below are seven small business tax deductions you can use to lower your tax bill. If you are self-employed,  a good retirement plan might be a Keogh plan. These plans must be established by December 31 but contributions may still be made until the tax filing deadline (including extensions) for your 2022 return.

Where to get more help with year-end bookkeeping procedures

Questions as appropriate to the content should be directed to the site owners. It’s crucial to maintain proper records to substantiate business expenses and prove they were business-related. For example, entertainment expenses should detail who was there and what business was discussed – these details will be needed if and when there is an audit. With company vehicles, you will need to log the mileage related to business travel as you or your employees use the vehicle. Did you know that tax planning for your small business can help reduce the taxes that you owe? When you’re looking to grow your business, tax planning plays an important part in shaping your overall vision.

The good news is that you can wait until you file both your corporate and personal returns to make these decisions, so there’s still a little time. A certified public accountant (CPA) will help you legally reduce your tax liability so you’re not left with a huge bill to pay at year end. The qualified business income deduction allows eligible self-employed people and small business owners to deduct up to 20% of their qualified business income on their taxes. Generally, if your taxable income is under $164,900 for single filers or $329,800 for joint filers in 2021 or $170,050 and $340,100 in 2022, respectively, you may qualify.

GETTING STARTED

In mid-January, you’ll have to pay estimated taxes for the fourth quarter. This offers a good time to assess your year to determine what you should pay in estimated taxes, reducing any surprises come Tax Day. It’s an issue that almost always lurks in the back of the mind of an owner, sole proprietor or contractor. As you get to the end of your business tax year, you may have the option of taking income in this year or next year.

If you’d like to create an individual 401(k), you can start the process online through a brokerage that offers them. Small business owners often wear many hats when operating their business. They’re in charge of marketing, product development, management of staff, accounting, etc.

Small business tax tips FAQ

Tax years 2020 and 2021 had special deductions for charitable contributions even if taking the standard deduction. For 2021, this amount is up to $600 per tax return https://kelleysbookkeeping.com/how-to-calculate-owner-s-equity/ for those filing married filing jointly and $300 for other filing statuses. In 2020 you could deduct up to $300 per tax return of qualified cash contributions.

• The bulk of the year is over, so you can get a realistic forecast of your tax situation while there’s still time to plan for it.
• This won’t reduce your taxable income for the year, but it will allow you to strategically transfer wealth to your heirs tax-free.
• For instance, the National Federation of Independent Business (NFIB) asked companies that saw a decline in profits what was the reason in its monthly optimism index for September.
• This material is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy.
• Flexible spending accounts, also called flex plans, are fringe benefits which many companies offer that let employees steer part of their pay into a special account which can then be tapped to pay child care or medical bills.
• If the gain is too large and the child’s unearned income exceeds $2,300, you could end up paying taxes at the same rates as you do.

MLPF&S is a registered broker-dealer, registered investment adviser, Member SIPC and a wholly owned subsidiary of BofA Corp. Consult your tax advisor regarding the specific End Of Year And Beyond Small Business Tax Tips laws and related rules. Just know that if you receive the money from the customer later, you will have to reverse the write-off and declare the payment as income.