Knowing how to minimize small business taxes means you get to keep Uncle Sam's hand from picking your pocket of hard earned money at tax time. If you are not taking advantage of every available, legal, tax loophole, your business profits are being handed over to the IRS.
The following tips will help you reduce small business taxes.
- It is recommended to take full advantage of one's claim on Capital Cost Allowance. If you need to buy supplies, machinery, and technology, time it for maximum savings. If doing the math shows you will minimize your tax exposure deducting the expenses this year, do not delay. Using Capital Cost Allowance on your new property, you will still increase the CCA for the current year and will have increased CCA claims for the next year.
- Consider postponing disposal of depreciable resources. Do not dispose of business equipment until the following year depending on which will better reduce the tax liability for your business.
- Planning income deferments can also help minimize your business tax liability. Postponing or putting off income is recommended if business profit will be higher or if the tax rates in the following tax year are expected to be reduced.
- Through smart tax planning managing your expenses to meet higher profits is another strategy for further minimizing tax. Let the tax implications dictate the timing of improvements, supply purchases and equipment upgrades.
- Make the most of Registered Retirement Savings Plan (RRSP) payments possible as a means of minimizing small business taxes. Contribution of up to eighteen percent in any given year of the profit, along with a Registered Retirement Savings Plan (RRSP) payment is deducted from the income. An RRSP is advantageous to be considered for tax deduction for small businesses. Additional deductions you may or may not be taking full advantage of include write-offs for start-up expenses; office costs; furnishings; advancement through education; travel expense; insurance premiums; affiliations; and conferences.
- Employ members of the family. The government is particularly understanding to family-run businesses when salaries are concerned. You are not required to provide payment for federal unemployment taxes if you employ in your business your husband or wife or parents. There is no need to hold back income taxes and Social Security if siblings work in your business. However, child labour laws are still applied even if they are your children so age restrictions must be considered. As employees they must receive proper salaries and must be assured that the company is benefited in order to be eligible for these exemptions that can help dramatically reduce small business tax exposure.
- Employ independent contractors so you will not have to withhold state income taxes from their salaries. As the business owner, you will not have to provide withholding payment for the employer's contribution for Social Security as well as Medicare taxes. There is also no need to provide unemployment benefits for independent contractors. However, make certain that the IRS does classify the independent contractor as your employee. If they do, you will be requested to provide payment for taxes including fines levied for any missed withholdings you may or may not have been aware of. Consult your tax expert before categorizing an individual as an independent contractor to be sure you are properly doing so.
- Contributing to charity can help reduce small business taxes. Donating to non-profit groups that work to help others who need assistance is a great way to reduce tax liability. In this way, you will be able to decrease the tax exposure of your business. Tax incentives are offered by the IRS for businesses and individuals who give contributions, so why not take advantage of these opportunities that are mutually beneficial by creating a tax plan of donation to your favorite charities.
Prior to making a contribution, be sure the charitable organization qualifies for the deduction you seek. The IRS also requires you to document with the organization donations of $250 or more.
No one is exempt from paying taxes; however, executing a proactive, smart business plan to reduce the business tax exposure for your business is good business. Small deductions when added up, combined with a tax aware financial plan created with an experienced accountant can help not only to minimize your business taxes but grow the future you are working so hard to create.