Owning and caring for a small business can be as tough as it is expensive — especially if you pay more in taxes than you actually owe. Garrett Gunderson, a finance expert performed a small study on small business tax and found that a large number of business owners pay more in taxes than they should. While you are not expected to be a pro at business tax, it is important to know where you can save money so you can grow your business.
Here are a few ways to save this tax season in 2019!
1. Hold On To Your Receipts
Holding on to your receipts is extremely important because they show your shopping history and what you buy on a daily basis. A lot of items on your receipts can be deducted on your taxes. Depending on your business strategy and structure, there are certain deductions you can apply to all of your structures. Unfortunately, it can be hard to keep up with every receipt you get over the year since small pieces of paper can go missing or be misplaced.
A good way to keep track of your receipts is to take pictures on your phone and label them as “business receipts”. Other alternatives include using apps that will store and organize your receipts in one place. Many also have features that let you import photos of receipts, and forward email invoices.
2. Start Retirement Today
Start and pay for your retirement now so you can get the payoff later. A self employed individual’s taxable income can be lessened by putting extra money to a 401k account, and the money isn’t taxed unless money is taken out! Small business owners who are under the age of 50 can add up to 6,500 to a Roth IRA or a retirement account. Those who are older than 50 can add 6,500 to theirs.
3. Earn Money From Your Business Equipment
Section 179 gives small business owners the opportunity to avoid tracking depreciation by acting like the equipment as a business expense the year it was bought. There is a limit of $500,000 (as of 2018). Business equipment includes anything a business owner may need to keep things running from computers, laptops, furniture, cooking items and office supplies.
The section 179 calculator can help with finding out how much you can save by having the lump sum. Remember that you need to file a 4562 form to elect it as it won’t be automatically applied.
4. Hire A Family Member
When you hire a family member, you make it so you can take a business deduction for compensation paid to that person, this can lower your taxable income and you can even avoid taxes like FUTA and FICA.
5. Account For Carryovers
Unfortunately, some tax deductions or credits will not be fully used in 1 fiscal year but they can be used in the future and can keep carrying on. These things can include net operating loses, charitable contribution deductions, home office deductions, and capital loses.
You should track these or have a software for it so you don’t forget about years later. This is a great way to save and invest money!
Note: Do not sell your old equipment outright.
If you’d like to get rid of equipment or property that’s no longer needed, see if it would be better to leave it (a normal loss) or sell it as capital loss for tax deductions. A normal loss of business equipment is completely taxable. So see what the equipment or property would be classified as under section 1231.
6. Penalty Relief
Try to take full advantage of penalty relief if you are eligible. If you follow these recommendations, and occasionally with an accountant, you might still get in trouble with the IRS and be penalized. See if you qualify for relief.
Some penalties such as not filing for a tax return or paying too late are eligible for penalty relief. There’s also ways people can be considered for relief like people who attempted to follow the rules but were unable to due to life events that were not in their control or those who fixed the issue once they received the notice.
What is your favorite tax reduction that we listed here? What are some ways that you get tax deductions for your small business? Tell us in the comment section below and share this with other small business owners!