Taxes and death are inevitable. We can’t avoid either of them. But, do we really have to pay so much to settle our tax obligations?
One way to maximize profits is to learn how to reduce taxes effectively. Any tax deduction properly recognized is a dollar saved and a dollar saved……
Below are seven tips that small business owners can implement to save money:
1. Plan ahead
You don’t have to wait until the 11th hour to see the impact your transactions have on your tax obligations. At crunch time, the chances of missing important factors, like the effect of asset acquisitions on your tax declaration, may be forgotten.
Plan ahead so you can analyze how various financial transactions will affect the taxes you pay.
2. Entertainment Expenses
Don’t forget to keep your receipts whenever you dine out with clients. These expenses are 50 percent tax deductible.
Check with your bookkeeper or accountant for exceptions. For example, if you take your entire staff out for dinner (no one is excluded), then the deduction is 100 percent.
3. Home Office Expenses
If you operate a home-based business, you can include some expenses related to your home office for tax purposes. This may include rent, utilities, repairs, etc. The idea is not to charge the full amount but a proportionate amount in relation to the size of your home office within your house.
4. Expenses incurred for doing business
Once you incur any expenses in the course of doing business, no matter how small, be sure to record them and keep all your receipts. Many of those expenses may be tax deductible. Check with your accountant or bookkeeper. Even small tax deductions add up.
5. Pay family members’ salaries
If your teenage daughter does simple administrative tasks, or your spouse helps you manage the business, make sure you pay them a salary. You should be able touse these expenses as tax deductions.
Of course, you should pay them an amount that has a value in direct proportion to what they do. Paying them more than what is reasonable just to get away with paying bigger taxes can cause problems with the taxman.
6. Depreciation expenses
You can amortize most capital expenses by allocating depreciation amount based on the useful life of the asset.
Be sure to talk to your accountant about the best amortization method and how it could impact your income statement and balance sheet in the long run.
7. Hire a professional accountant
If you are thinking about cutting costs you may want to hire a professional accountant. The value of their expertise may far exceed the amount you pay them in the short term.
Keeping your financial statements in order is an important part of your business. Working with an accountant and following their recommendations will help you increase the profitability of your company.