These strategies can help you avoid being penalized by the IRS
Most small business owners often put tax planning on the sidelines. As a result, they often fail to maximize their tax benefits and are hit with the corresponding penalties and interests. To prevent this from happening, here are some tax planning tips that you may want to consider.???
Tax Planning Strategies for Small Businesses
Choose the right entity for your business. Since different types of businesses have different tax rates and liabilities, you should classify your business appropriately. If your business started out as a sole proprietorship but has since outgrown this structure and is now netting more than $100,000 per year, you may need to reclassify your legal structure to get the most benefits from a tax standpoint.
Make your business audit-proof. Small businesses are most likely to be audited so you should make sure you have an accounting system in place, save business-related receipts, and keep track of your business activities.
Take advantage of deductions. Small business owners are allowed to deduct business costs (including auto expenses, home office costs, travel and entertainment expenses, legal and professional fees, interests and bad debts) from their gross income. Determine which deductions are applicable to your business and maintain records for all of these items.
Check available tax credits. Under Section 179 of the Small Business Jobs Act of 2010, small business owners are allowed to immediately expense their capital assets instead of depreciating their cost over their productive lives. You are also allowed certain tax credits for hiring disadvantaged workers (including veterans), doing research to create new products, and making your business more accessible to accommodate persons with disabilities.???
Take care of your employees. Providing fringe benefits can keep your employees happy and allow you to save money in payroll taxes. It is really a win-win situation for everyone.
Start a retirement plan. Saving for your retirement is actually one of the best decisions you can ever make as a small business owner. Some retirement plans allow you to save as much as $50,000 per year, and all of it can be tax deductible. Consult with your financial advisor to determine which retirement plan will best suit your needs and current situation.
Get professional help. It would be in your best interests to hire a home-based business tax professional since he or she can give you valuable advice in planning your taxes and also help you avoid being penalized for inaccurate, inappropriate and/or late filing of taxes.??
