Can You Reduce Tax Burden On Your Small Business?
Small Businesses do not relish tax season just as many people worry about the tax burden they have to bear. Tax season is definitely burdensome but entrepreneurs who are adept at playing their cards right can ensure they do not have to be concerned about the tax burden upon them. Several methods are available to reduce the tax burden on their small business and we are listing out some of them in this article as they have proven to be extremely beneficial.
What can small businesses do to reduce tax burden?
Hiring Family Members
The United States is especially friendly to family businesses as far as wages are concerned. Small businesses will benefit from the exemption of paying federal unemployment taxes if they decide to hire family members like their spouse or parents. They will also be given the benefit of withholding income taxes and Social Security if their children are also working with them. However, they will be required to follow the labor laws applicable to children and also to be reasonable with their salaries to ensure that the kind of work assigned to them, benefits the company and qualifies the business for the exemptions.
Hiring Independent Contractors Is Another Option
Small businesses will benefit if they decide to hire independent contractors because they will not be required to reserve federal and state income taxes from the earnings of the contractors. They will be exempt from paying their share of benefits towards Social Security, Medicare taxes, and unemployment benefits.
They just need to ensure that the contractor is not considered as an employee by the IRS because in the event of a mistake, they would be liable to pay back taxes and penalties. Seeking the advice of a professional tax advisor will become a necessity before the business can classify an individual as an independent contractor.
Maximizing Deductions Can Help In Reducing Tax Burden
The professional tax adviser hired by the small business can also provide information about how the business can maximize deductions by keeping proper records and receipts. Small businesses will have certain key categories which can be written off to maximize deductions. The categories include startup costs, furniture, education, insurance, travel, office expenses, memberships, and conferences.
Paying Bills Before the Year Ends Will Also Prove Beneficial
Business-related expenses such as the rent, phone bills, electricity which may be due at the beginning of the year, should be paid earlier because the expenses would be covering the use of these facilities for the previous year. The expenses incurred and paid can help the small business reduce the tax burden which usually comes in April.
Making Investments In Needed Equipment
Small businesses usually decide to wait for some more time before they decide to replace an old computer or invest in other requirements that the business might have. However, it would be a smarter choice for the business to make an investment before the end of the year as it will make them liable to receive some of their investment back as deductions and also proved to be a benefit by reducing their tax burden.
Getting Involved In Charitable Activities
After making any investments needed, small businesses can consider donating any old equipment to charity which cannot afford new equipment as a method to reduce the tax burden for themselves. Tax incentives for donations are given by the IRS and therefore it would be beneficial for small businesses to take advantage of them.
Small businesses just need to ensure that the donations are tax-deductible and the charity they intend to make is qualified. The IRS will demand acknowledgment in writing from the organization which received the contributions if the value exceeds $250.
The Welfare to Work Tax Credit Should Also Be Utilized
The Welfare to Work Tax Credit is designed to encourage the employment of people from certain groups. These are groups which have high unemployment rates or needs of other kinds. The people could include individuals from the group of veterans, high-risk youth and even ex-felons. Small businesses which qualify for participation in the work opportunity tax credit program can reduce their tax burden by $2400 per employee.
The welfare to work tax credit aims to provide an incentive to businesses if they are willing to help individuals who may be receiving welfare to begin working. Small businesses which are participating in this program can reduce their federal tax burden by around $9000 over a period of two years for every new qualified employee they hire.
Small businesses can certainly consider tax season as a hassle but if they are willing to apply their minds and use some of the above-described methods, they will find that there are methods available on hand to reduce their tax burden by some margin.
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