Effective Ways To Save Money On Business Taxes

If you ask any entrepreneur or small business owner the most challenging aspect of financial management, they’ll probably bring up taxes more often than not. Filing tax returns as a sole proprietor, LLC, or other entity is more complex than filing as an employee. You’re also more likely to owe taxes as a business owner, which cuts your earnings.

While experts recommend setting money aside and paying taxes quarterly to reduce financial strain, these aren’t the only solutions to lower your tax bill. Continue reading for ways to save more on company taxes.

Work With A Tax Accountant

Tax accountants are numbers people. They are also well-versed in tax rules, regulations, credits, deductions, refunds, and filing strategies. Their years of education, training, and experience enable them to assist their clients in meeting tax requirements while bearing the lightest financial load possible. While hiring a tax accountant is an added expense, the money you save from their services is worth the investment.

Of course, you are hiring an accounting firm to help you with your small business finances, but you don’t want to spend all your money on them. One accounting firm may charge differently than another accounting firm, so it’s best to consider as many options or offers as possible before making your decision (check out Howlader & co. if based in London). More than that, make sure that the money you will be spending on them will be worth it.

Open A Retirement Account

Some employees benefit from receiving retirement account contributions or pensions from their employer. However, saving for your future is your responsibility when you work for yourself. If you don’t already have a 401K or IRA, perhaps the idea of lowering your tax bill will convince you otherwise. Since the IRS defers taxing income deposited in a retirement account until it’s withdrawn, you could save money while creating an income source for your future.

Get Health Insurance

While some entrepreneurs qualify for discounted or government-funded insurance, many have to foot the bill for healthcare themselves. Apply for insurance coverage through a trusted provider rather than paying out-of-pocket for medical appointments, medications, and other treatments.

Paying for health insurance ensures you have financial coverage to get the medical care you need. However, it can also reduce the amount of taxes you owe. At the end of the year, you can deduct the cost of your health insurance premiums, which reduces your earnings and tax balance.

Keep Records of Expenses

Some business owners and entrepreneurs assume that expenses only equate to overhead costs. However, that is not the case. A business expense is any product, service, or activity you purchase to conduct business. So, whether you lease a commercial property, buy a new smartphone, or travel to Portugal for conferences or client meetings, it all classifies as a business expense.

Keeping accurate records like receipts, invoices, bank, and credit card statements makes it easier to report your taxes. The more expenses you have, the less income the government considers taxable. Some costs could even qualify you for other tax-saving opportunities. For instance, that international trip could meet the VAT refund Portugal requirements and save you money on your taxes.

Write Off Bad Debts

Extending credit or installment payments to customers has its advantages. It allows consumers access to your products and services with reasonable repayment options over an extended period. Be that as it may, if customers don’t pay their balances, it leaves businesses on an accrual accounting system in a bind.

Essentially, you can’t count the transaction as revenue until the money is received. The longer a customer takes to repay, the more liability the account becomes. Fortunately, businesses can write off delinquent or abandoned accounts as “bad debt.” This will deduct the outstanding balance from your income, reducing your tax balance.

File On Time

Waiting until after the tax filing period to submit your business returns will automatically increase the amount you owe. State and federal governments add fees, penalties, and interest to late tax returns, increasing your tax liability by hundreds of thousands of dollars. A practical solution to this issue is to mark down tax filing deadlines and allow yourself plenty of time to prepare or work with an accountant. If there’s a reason you can’t file on time, be sure to request an extension to avoid penalties and other fees.

No one likes filing tax returns or paying money to the government, but it’s a requirement and obligation as an American citizen or business. While taxes are an expense you can’t get around, there are multiple opportunities to reduce the amount owed. Working with a tax accountant and implementing tax filing strategies like those listed above can help you save money, so you have more to invest in your personal and professional life.

Justin Weinger

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Justin Weinger is a Corporate Finance Manager in private equity with more than 15 years of experience across automotive, banking, consulting, and healthcare. A married father of three and longtime personal finance enthusiast, he has written extensively on practical money management, taxes, loans, retirement planning, and small-business finance. His work appears regularly on SavingAdvice.com, CleverDude.com, and other personal finance sites, where he draws on real-world corporate finance expertise to deliver clear, actionable advice.