Tax Planning Strategies for Small Businesses

We get it – tax planning isn’t the most exciting part of running a business. This is especially true for small business owners who already have so much to take care of. But implementing the right business tax planning strategy can actually help drive growth. You can save money, ensure legal compliance, and have confidence in your business operations.

The “why” of tax planning for small businesses is clear. So let’s come to the “how.” Here are some tax planning strategies you can implement as a small business:

Take Advantage of Tax Credits

Tax credits allow you to reduce a certain amount from the total amount of taxes you owe. Small businesses can leverage several tax credits, including:

Work opportunity tax credit – if you hire people from a certain group who typically face barriers to employment, you can get this credit.

Small business health insurance credit – this is available to small businesses that offer health coverage for their employees.

Clean energy credit – this applies when you make investments in clean-energy improvements.

Charitable contribution credit – if your business makes a donation to a charitable organization, you can avail this credit.

You can learn more about business tax credits by enrolling in a business tax course. Tax courses by Intuit Academy cover everything a partnership or an S corporation needs to file taxes stress-free.

Separate Business and Personal Finances

Making personal and business expenses from the same account may seem convenient, but it can lead to a plethora of complexities later on.

Separating business and personal finances ensures accurate tracking when you file taxes. You can easily identify and claim legitimate business deductions. Moreover, mixing finances can trigger red flags with tax authorities like the IRS.

Structures like LLCs and S corporations are especially recommended to separate business and personal finances. This helps protect your personal assets in case your business faces debts or lawsuits.

Review Your Tax Status

Your business structure affects what taxes you must pay. So it’s a good idea to review your tax status before preparing.

Look at it this way: Many businesses operate as a C corporation (C-corp) because it allows different stock classes, enabling their business to raise capital. But if your small business doesn’t need to raise capital, there is no need to stick to the C-corp status. You’d be paying a separate corporate tax for no reason.

In such a situation, filing taxes as an S corporation (S-corp) is, therefore, more strategic. As an S-corp, you will be subjected to a single layer of taxation as both profits and losses are passed through to the owner’s income. You can achieve the same level of protection while saving on taxes.

Claim All Business Expenses

According to the IRS, small businesses can qualify for a number of tax deductions. These can be obtained by claiming all ordinary and necessary expenses. Examples include:

• Office rent
• Vehicles
• Utilities
• Supplies
• Software
• Internet and phone

And that’s not all. If you use a part of your home exclusively for business tasks, you can claim a deduction. This will fall under home office expenses.