As the owner of a small business, it is crucial to position yourself for success by understanding the taxes you will be liable for. Seeking early taxation advice at the beginning stages of your company’s development is crucial for avoiding mistakes that could have a lasting impact on your business. In this blog post, we’ll offer pointers for success and outline the benefits of tax planning for small businesses.
What You Need To Know At The Start
Almost all new businesses need to apply for a U.S. Federal ID number. As you register an online application with the Internal Revenue Service (IRS), you need to familiarize yourself with the following taxes:
- State income taxes
- Federal income taxes
- Sales tax according to a state-by-state basis
- Employment Tax
- Property Tax
Furthermore, additional taxes may also apply depending on the nature of your business, such as registering with state regulators.
To streamline this process and ensure that all the boxes are ticked, ensure that someone is overseeing tax compliance. This is where an external accountant may come in handy. Timely withholding and remittance of federal and state employment taxes are essential to compliance. Consult an expert on the various taxes you are liable for and for guidance on tax planning in order to save yourself potentially thousands!
Invest And Reinvest In Your Business
Once your business is running, consider reinvesting in it to reduce taxes. You may do so in various ways, such as by buying new equipment like a vehicle or replacing old equipment. Accelerated depreciation can be usually taken to reduce taxable income during the year of purchase.
Make A Traditional IRA Contribution
A traditional IRA contribution will be a direct deduction against taxable income. Kill two birds with one stone by saving up for retirement while reducing your tax liability! Note, however, that you will not be able to withdraw any of this money until you reach the age of 59 ½.
Make HSA Contributions
Health Savings Accounts are one of the largest personal tax deductions. Since 2018, your medical expenses are no longer deductible to most taxpayers. By contributing to an HSA, you get a direct deduction against your taxable income whether you itemize your deductions or not. You may then relocate these funds toward medical expenses and these distributions will not be considered taxable.
Consider Changing Your Business Structure
Sometimes, changing the tax structure of your business can easily save you money. For instance, when a business owner reaches a certain level of income, it may be more beneficial to be an S-corporation instead of a partnership or a sole proprietor. Various factors can affect this decision, so it is best to consult a tax professional before making any structural changes.
As a small business owner, we understand that you are inundated with multiple responsibilities at all times. Ease your burden and let us do what we do best by helping you maximize savings on taxes so that your business can grow faster. Set up a consultation with one of our professionals today!