Owning a small business may require wearing multiple hats, especially if you want to cut costs. The tax season isn't exactly one most business owners look forward to. If you are reading this, chances are you are looking for ways to optimise your business tax efficiency. Fortunately, you can do a few things to lower how much you pay in taxes and reinvest the savings into your business. Below are a few tax-saving tips to lower your small business tax bill.
1. Car expenses related to your business
You can deduct your vehicle's operating cost if you use it for business purposes. The vehicle operating costs may include auto leasing payments, petrol, maintenance, parking and even repairs in certain instances. If you use your car for both personal and commercial purposes, you can deduct only the percentage attributable to your business. In this case, it is important to keep records to prove the quantity of commercial usage. You may use your mileage log to show when you use the car for business purposes.
2. Phone service deductions
Do you have dedicated phones for personal and business use? Whether they are landlines or mobile phones, you can usually deduct the whole amount for the lines you use for business. The Inland Revenue doesn't allow expenses deduction for both business and personal purposes. You can, however, deduct any long-distance rates incurred while conducting business. Also, you may be eligible to deduct a portion of the phone service cost if you have a second line or a mobile phone for both business and personal conversations. For instance, you can claim 65% of your phone bill if you use 65% for commercial and 35% for private use. However, you may request an itemised phone service bill for business purposes as proof of phone usage.
3. Claim the business income tax deduction
You can claim the eligible business income deduction if you declare business income on your individual tax return. Some entities can claim the qualifying business income deduction, including single-person businesses, partnerships, limited companies, and so on. This deduction permits self-employed individuals and owners of small companies to deduct up to 20% of their qualifying business income from their taxes.
4. Track your expenditures
As a small business owner, you can take advantage of every possible deduction by maintaining meticulous records and tracking all your business receipts. Disorganisation may result in you paying significantly more taxes than necessary. However, managing hundreds of pieces of paper may become laborious, untidy, and burdensome. Therefore, getting software to help you track, store and organise your receipts is practical. So small company owners should invest in software that tracks, stores, and organises every receipt. It will be easier to discover documentation of costs during tax season, saving you time and money. Identifying every deductible item is the best way to save money, so invest in software that relieves you of the stress of recordkeeping.
5. Bad debts
If you are owed money while running a business, you may be eligible to deduct it from your tax return. If you employ the accrual method in your firm, chances are that you will incur bad debts since not all clients who purchase on credit may be able to honour their payments. You can avoid the risk of bad debts if you employ the cash method like most small businesses. Plus, you cannot normally deduct bad debts for uncollectible client accounts. Normally when you sell on credit, you don't treat it as income until payment has been made. If you make loans to clients, suppliers and workers, you can deduct the bad debt when they become uncollectible.
6. Hire family members
Hiring a family relative is one of the finest ways small businesses can save money on taxes. However, there are several alternatives in this regard. You can hire your kids to help you avoid paying taxes on your earnings. You pay a reduced marginal rate when hiring your children, sometimes none. Payments to your children may also be excluded from social security and other taxes if you own a sole proprietorship. Ensure that the earnings are legitimate for commercial reasons. Hiring a spouse may also offer some tax savings.
7. Save for retirement
As a small company owner, you have numerous tax-advantaged retirement savings alternatives to explore to maximise your retirement savings while reaping tax benefits. If you are self-employed, it’s important to consider all your available options in terms of saving for your retirement. Speak to a reputable financial adviser about the best pension products that will allow you to create a reliable nest egg for the future. Additionally, you may be entitled to an employer plan based on your self-employment net income.
8. Home office deduction
You may be entitled to claim a home office deduction if you have space in your house as a home office or for commercial activity. However, there are certain regulations you must follow. In most circumstances, the area you claim as your home office space should be dedicated only to business. However, this doesn't suggest having an entire room set up for only business purposes. For instance, if you utilise half of your living room as a home office, you may be eligible to deduct costs depending on the square footage you utilise only for business purposes. You can deduct indirect and direct expenditures when claiming a home office. Direct costs are exclusive to your home office, like paintings, while indirect costs are those you spend on utilities, like rent and power for the entire property.
9. Consider health insurance
There is no disputing that health insurance can be expensive. But the good news is that the Inland Revenue offers particular benefits for self-employed individuals who contribute to their own insurance. For instance, you can reduce your tax burden if you work for yourself and are responsible for your health insurance. Generally, employees who get health insurance via their workplace split the cost of the premiums. However, self-employed individuals like freelancers, gig workers, and independent contractors may not obtain this health insurance offer. You may be able to claim the self-employed health insurance deduction.
10. Deduct assets to charity
Donating depreciating assets to charity is an excellent tax-saving method. Regularly donating benefits both the charity and your company by demonstrating your commitment to the community and your brand's values. However, choosing a charity relevant to your business and the community is important. Remember to notify your clients about benevolence. Donating to charity is a win-win situation since it can earn you goodwill and more loyal clients for your brand.
11. Hire a reputable CPA
There are several regulations and complexities when it comes to business taxes. And you don't want to risk missing out on something critical about your taxable account. For this reason, it is essential to engage the services of a trustworthy, qualified public account. You may be able to deduct a qualifying childcare payment or use your health savings account. Regardless of your financial condition, a professional will have a strategy to get your taxes done correctly. Aside from making sure you pay everything that is owed, there are other write-offs that you may be unaware of that might reduce your tax burden. Remember that CPAs do not cost you money but save you money. Some financial advisers can work together with your account to reduce your tax exposure.
When it comes to small businesses, every penny matters. You can keep more earnings or reinvest in your business if you can reduce your tax burden. Fortunately, these few tips can lower your tax payment.
Image by Steve Buissinne from Pixabay
