Paying taxes might be the most frustrating part of running a small business. Many entrepreneurs already spend so much money in maintaining their business that they dread the thought of paying more. Luckily, there are several strategies small-business owners can take advantage of to reduce the amount they owe each year. Here are five of the best:
Make an S election for the LLC you set up
If you previously created an LLC, you can easily elect to be taxed as an S-corporation before year end. It’s simple and affordable to file the paperwork and can save you a hefty chunk of change. Just remember: paying less in taxes means that you may ultimately reduce the amount of Social Security income you can receive later.
Do your children help you out with your workload on a regular basis? Why not put them on the payroll–officially? Hiring family is one of the most overlooked ways to reduce taxes out there. How does it work? You pay your children, gaining a tax write-off, and they pay taxes on that income at a lower rate than you would. In addition, their wages give them the ability to cover costs (like trips to the movies or a personal cell phone) that you’d normally be on the hook for.
Purchase a work vehicle
Many small business owners write off mileage as a tax deduction strategy. But if you work in an industry where you need to use a large truck or SUV, purchasing a vehicle that weighs over 6,000 pounds can end up saving you money in the long run. The current deduction for depreciation can be up to $25,000, depending on the cost of the vehicle and how often you use it for business.
Rent out your home for business-related activities
If you regularly host meetings and office get-togethers in your home, you may be missing out on an opportunity for tax savings. The IRS allows homeowners to rent their property to other individuals or entities for 14 days or fewer within a calendar year, and the income is exempt from taxation.
Start saving for your retirement.
When it comes to business revenue, saving money for yourself is probably the last thing on your mind. There are always so many business expenses you need to take care of! But contributing to a 401(k) or SEP IRA can not only help secure your financial future but offer you immediate tax savings right now. If you can get your taxable income below a certain threshold, your business could qualify for a 20% pass-through tax break.