Small Business Tax Strategies to Save Money

Accountants are tax professionals who provide essential financial services to small business owners and entrepreneurs, including tax advisory and IRS compliance, to minimize a business's tax burden. There's universal agreement that an accountant is an indispensable part of operating a small business, but finding newer businesses without one is not difficult. Operating without an accountant is one reason small businesses pay more than they have to in taxes, up to double on their tax bill, in the first year. If you have yet to hire a certified public accountant (CPA) for your small business, don't worry; you can still work to maximize your tax savings by using this blog as your guide. In it, you'll find a number of winning tax planning strategies that will help you keep more of your hard-earned money in your pocket.

9 Tax Strategies for Small Businesses

Defer Income and Accelerate Deductions

Deferring your small business income and accelerating deductions is an excellent tax-saving strategy. When you defer your business income, shifting it from one tax year to next year, you can potentially lower your tax bracket and your overall tax liability. This shift to a lower tax bracket may qualify you for deductions unavailable to businesses in higher brackets. The tax deductions your business qualifies for will lower your tax liability further, minimizing the amount you will pay to the IRS. 

Pass-through Entity Status

While the business structure you select should be advantageous from a tax perspective, it might also add responsibilities on top of your day-to-day obligations. Certain structures you can form as are pass-through entities (sole proprietorship, partnerships, limited liability company, LLCs, S corps, but not a C corporation) that do not pay federal income tax on their business profits. Instead, the business passes income and deductions to the owner or owners. The pass-through entity's ownership must report the distributions on their personal income tax returns.The pass-through entity tax status benefits small business owners by avoiding double taxation. If you're having issues selecting the best entity for your business, use our LLC & corporation business formation service. 

Employee Benefit Plan

Prospective employees will gravitate towards businesses that offer the most attractive salaries and employee benefit plans. Unfortunately, employee benefits often carry high upfront costs that can stress a small business's operations. The upside is that there is relief, as certain employee benefits may qualify for a tax deduction or tax credit. Employee health care and paid leave may qualify for a tax credit, while tuition reimbursements and retirement plans may be deducted. When you're evaluating the benefit plan to offer your employees, always consider whether you can receive tax deductions and credits before you finalize your selections. 

Gifts for Family Members

While the threshold can change from year to year, you can provide up to $18,000 worth of cash or assets as a tax-free gift to a family member in 2024. If you engage in this wealth transfer practice, you must report it to the IRS via Form 709.Utilizing tax-free gifting scenarios can be useful to multigenerational family businesses that are grappling with questions regarding the most efficient way to transfer wealth to the next generation and defining who will control or continue to control the business. Strategic approaches to gifting can help answer these questions and minimize your business's annual tax liability. 

Green Energy Tax Credits

The government offers green energy credits to businesses that invest in or manufacture environmentally friendly materials. While the average small business may not qualify for a nuclear power energy credit or others that may be a better fit for large corporations, certain activities can qualify. These include: 

While investing in green energy helps the environment, these materials, such as upgrades to your office lighting, are more energy efficient, reducing your overall energy costs. 

State-Specific Tax Credits

All 50 states offer tax credits and other incentives to businesses. Some state tax credits can be more generous or targeted than others, depending on the investments or industries they're looking to attract. Small businesses typically take advantage of state-specific tax credits, including those for research & development (R&D) and job creation. If your business operates in multiple states, research the states offering the most attractive industry credits and incentives. Other considerations, such as business friendliness and tax rates, should be considered before entering a new market, in addition to the tax credits available to your business. Do you need help entering a new state? 1-800Accountant offers financial services in every industry in all 50 states. 

Industry-Specific Tax Credits

Numerous industry-specific tax credits are meant to create added incentives for specific industries. For example, Hollywood was the unchallenged hub for film production in the world for many years until other territories, mostly notably the state of Georgia, began offering aggressive tax credits, which ended up wooing many productions to the state. The Georgia Film Office: Film Tax Credit has played a significant role in establishing Georgia as a serious hub of art and commerce. Industry-specific tax credits can be transformative in reinvigorating a city or state. When you're preparing to enter another state, check with local officials, including the Secretary of State, for a listing of tax credits that may be available to your industry. 

Tax Deductions

A tax deduction reduces your business's tax liability by lowering the total taxable income. However, a tax deduction or tax write-off differs from a tax credit. Tax credits reduce the amount of tax you owe directly, whereas deductions reduce your taxable income.

You should take every deduction allowed on behalf of your business. Doing so will lower the amount of income that is subject to taxation. For example, consider a coupon that offers a $2 discount on a $20 purchase. In this case, you only pay sales tax on the remaining $18. Similarly, deducting from your taxable income reduces the amount of money that you will owe to the IRS.

Keep Immaculate Books

The function of bookkeeping is to ensure that all financial data is properly recorded by creating a general ledger. The general ledger is where information such as debits and credits are recorded. Record-keeping and maintaining the ledger is detail-heavy work, with its thorough information providing the best tools for financial data interpretation, decision-making, and forecasting. 

Accountants use the financial information compiled by bookkeepers to produce financial reports. These reports are designed to help a small business owner better understand their profitability, cash flow, and financial path. Often, business owners turn to accountants for help understanding their finances at a high level for tax planning, forecasting, and advice.

Consult the Experts at 1-800Accountant to Reduce Your Tax Burden.

Reducing your business tax burden depends on several factors, including your state, industry, and entity structure. There are many moving parts, and making the best decisions to maximize your annual tax savings can be challenging. That's why small business owners and entrepreneurs trust 1-800Accountant, America’s leading virtual accounting firm, to reduce their tax burdens.Whether it's tax advisory, tax preparation, quarterly estimated taxes, or any of our professional accounting services, we have the affordable solutions you need to ensure your small business remains compliant. Schedule a quick consultation–usually 30 minutes or less to learn more.