Thursday, July 27, 2017

Small Business Should Employ These Strategies To Reduce Tax

tax cutting
Every small business wants to grow, but it can feel like the government’s policies are biting so hard into profits, that’s hardly worth all the effort. It should be clear for everyone, that tax evasion is wrong, and should anyone be caught doing it, they will be taken up by the law. However, smart tax strategies are totally legal. Small businesses can struggle when managing their finances against their larger competitors, and any kind of global slowdown will affect them more so than the large corporations. Being tax-wise is being wise in general, because, you shouldn’t be paying more than you have to. After all, you’re going to use the profits you make, to research and find better solutions to your products. You may also want to expand and hire more staff, but it can feel like you’re being punished for becoming a successful business. 

S-corporation status

You should make an s-election application on your LLC and have it ready for the new tax year, ready to be used in all your business ventures. However, you’ll be vouching for a level 1 corporate status, putting you in the lower bracket of taxes. It’s simple and affordable to file the proper paperwork. However, since you’re applying to the government, via the IRS, it may take some time. They will need large amounts of information and require the relevant payroll details that are taken out of the company. You must also take some payroll for yourself if you want to make the election. You should use the right tax attorney who cares for your needs, so you can apply for your business to be seen as a corporation. The services of such a legal instrument are needed, especially when dealing with the IRS, so you are protecting your business from unforeseen errors, however innocent they may be.

Set yourself a payroll

Newly elected owners of an s-corporations must also complete their payroll forms before the tax year is over in order to qualify. Don’t wait until the end of the fourth quarter because the IRS will need prior warning to your application. A late payroll confirmation will potentially trigger an IRS audit, which will take precedence over your s-election. Valuable time will be lost, and a somewhat intrusive inspection of all your legalities will be done by the government. This is to stop many business owners from avoiding tax, while also paying themselves a salary from their business. In a sense, some people use their own business as a cushion to avoid paying the proper business owner’s tax. By setting yourself a payroll, you clearly indicate that you personally profit from your business, therefore the correct tax rate can be set after a successful s-election application. 

Pay less by paying more

If a spouse works for you, you should be putting them on the payroll too. The more money you technically ‘lose’ by paying out a salary from the profits you make, the less corporation tax you will pay. Although you may be applying to go onto a level 1 status of the tax bracket, this is subject to change, hence the stringent IRS rules. You should also put your children on the payroll for any service they provide your business. This way, the money stays within the family, helping you with household bills and general life expenditures. Yet, you will pay less tax, because your spouse and children, will be counted as employees.

A vehicle purchase

Purchasing a vehicle, under business expenses will reduce the tax you’ll pay for the year. A business with a truck, or SUV, should be over a certain threshold, subject to your state or regional laws. If you’re in need of a new vehicle, buying a car, under the pretence of a business vehicle, the purchasing price will factor in a deduction. Discuss this option with your tax advisor, or business consultant to get a wider picture of your options. The vehicle will need to be shown with visual evidence and documentation. The vehicle should have stickers and decals of your business to make it look professional and more convincing when proving the evidence to the tax man. 

Keep records

Keep a record of all your expenses and the amount of tax you paid per year. Should you need to reconsider a spending strategy, it’s crucial to make changes based on evidence of your own business workings. Make informed decisions so you can have the best year-end tactic to implement. Bookkeeping is a great way to keep tabs on all spending and studying where you’re overspending.

It’s perfectly sound, to pay as little tax as you are required by the law. Small businesses need all the help they can get, and sometimes, only you can provide that help to your business. Do not veer away from proper legal practice. There’s a fine line between tax avoidance and tax evasion. Morally speaking, make sure any money you save from paying low taxes, goes back into your business, creating more wealth and providing the economy with more jobs.

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