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Money-Saving Tax Tips Every Small Business Owner Can Do
Running a Small Business is already challenging on its own. Just imagine if you have to think about dealing with taxes.
Although taxes are a bane to work with, there is nothing business owners can do but to pay them. Corporate taxes are expensive, and for Small Businesses, managing or reducing them can spell the difference between bankruptcy or profitability. But to be able to get to the latter, you have to know certain practices that will reduce your tax expenses.
Here are three money-saving tips every Small Business owner should know about:
1. Reduce taxable income.
It all starts with your taxable income. The higher the taxable income, the higher the tax rate. So, what you want to do is reduce this taxable income to a manageable amount.
There are many ways you can do this:
- By collecting all your receipts.It’s always important to have all the receipts documented. This basic yet tedious task will help you keep track of your taxes. At the same time, it will shed light on the items that are not taxable or exempted from tax. There are also certain tax deductions on purchases made depending on your business. For you to avail of those, you have to know which those items are and your proof will be the receipts.
- By getting rid of old equipment. There are two ways you can do this, and you have to compute which one gives a bigger tax deduction. You can either sell old equipment or state it as an ordinary loss. Equipment considered as ordinary loss are tax deductible, but not all equipment are. It’s best to consult with your lawyers and tax professionals regarding this.
- By deducting transportation expenses. Keeping track of transportation expenses is hard to do because some of these have no receipts. Nonetheless, getting those receipts are important to decrease your taxable income. If you are using your personal car for business needs, then you can also compute how much time your car is being used as a business resource. Once you know this, you can get a percentage then deduct it from your taxable income.
- By deducting work-from-home expenses. If you are working from home, that doesn’t mean that the utilities you use cannot be considered as an operational expense. In fact, if you have a part of your home dedicated to work, you can include utility expenses (e.g. electricity, water), repairs and a percentage of your mortgage payments.
2. Use a tax software.
Keeping track of taxes manually could be such a hassle even if you hire a bookkeeper to do it. Instead, what you can do to reduce costs and to get this done is to buy a tax filing software that will help track your expenses and at the same time prepare your tax returns. Compared to doing this on paper, tax software offers fewer errors and an almost accurate computation of your tax.
3. Separate your business and personal expenses.
While you want to reduce your taxable income by increasing your expenses, mixing personal and business expenses, is still a big no-no. When these are separate, it will be a lot easier to track expenses and anything that has taxes in it. At the same time, you can shield your personal assets from tax deductions made by your business and other liabilities.
As a Small Business owner, your goal is to reduce your taxable income and to have an idea of your expenses. In this way, you are able to gauge how much you spend on tax. It’s important that while you do this, you have a legal professional and a reputable accountant to guide you.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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