Here are a few valuable tips and strategies to help your small business navigate the often-complex tax landscape. Look bellow at nine high-level tax strategies to reduce your overall tax liability.
9 High-Level Tax Strategies
- Keep accurate records. Proper record-keeping facilitates smoother tax filing and allows you to identify opportunities for deductions and optimization.
- Maximize your deductions. Essential deductions include office rent, utilities, travel expenses, employee salaries, and business-use equipment. Consult with a tax professional to pinpoint all applicable deductions for your situation.
- Maximize retirement plan contributions. Remember, contributions to a 401(k) are made with before-tax income, and thereby lower your tax rate come tax season.
- Claim available credits. Tax credits directly reduce the taxes you owe. Look for credits like the Work Opportunity Tax Credit, Small Business Healthcare Tax Credit, Qualified Business Income Deduction, and others.
- Defer income and accelerate expenses. Be mindful of your cash flow and consider shifting income and expenses to your advantage. The method to defer income depends on the accounting method your business uses: cash-basis or accrual-basis.
- Plan for estimated taxes. As a small business owner, you likely need to pay estimated taxes quarterly to avoid underpayment penalties. It’s crucial to stay on top of these deadlines.
- Consider adjusting your business structure. Depending on your business goals and growth, transitioning to another legal structure like an LLC, S Corporation, or C Corporation may provide tax advantages. Weigh the pros and cons with a tax professional before making the switch.
- Pay for health insurance. Self-employed health insurance deductions can reduce your overall tax liability. They can be applied to premiums for medical, vision, dental, and long-term care.
- Use your car for work. By using a personal car for business you can enjoy significant tax advantages. To calculate your deductible car expenses, you can opt for the standard mileage rate — 67 cents per mile for tax year 2024 — or itemize your actual expenses.
