There are several ways to legitimately minimize your business tax liability, and while working with a qualified tax professional is one of the best ways to access them all, you can get a better idea of them below:
- Save tax-free money used for health and wellness spending
You could be eligible for health savings accounts (HSAs) if you have a high deductible health care plan; these make it simpler to save tax-free money that would have been used for health and wellness spending. By contributing more to your employee’s healthcare, you could take advantage of tax-free contributions and withdrawals.
- Get incorporated
Switching from a sole proprietorship or other type of business to an LLC – or limited liability company – could be beneficial for your tax liability, as many small business owners are permitted to omit the employer portion of their FICA taxes; decreasing their tax liability. For help with forming an LLC, reach out to an entity management firm, who can make the entire process simple and stress-free.
- Make the most of deductions
A tax professional can help you understand what you’re able to legitimately deduct from your business expenses, and if you deduct them correctly (which you will if you enlist their help), and apply tax credits, you can minimize your tax liability.
- Take on contract employees
By not being responsible for their employment taxes or healthcare costs, taking on freelance employees or independent contractors can give you the same quality of work, for a far smaller portion of the taxes.
- Make charitable contributions
Choose charities that you wish to support, and make meaningful contributions that you can closely track. Charitable donations enable you to deduct up to 25% of your taxable income, and as well as doing something great for an NGO, you can help build your philanthropic reputation while reducing your tax liability.
- Maximize deductions
Deducting absolutely everything for which you’re eligible, is the only way to truly maximize your tax liability, but for a number of business expenses, you can select one of two ways of deducting the expense.
If we use cars and travel as an example, you can choose to deduct the cost or use the IRS standard mileage rate for deduction. Or, you could categorize large purchases as a whole-item deduction, or deduct depreciation over time.
- Keep up to date with current tax laws
Working with a tax professional is the single most effective way to stay up to date with changes to tax laws (and these can happen often), and in doing so, you could minimize your tax liability in ways you may not even have known were possible, while keeping in line with the IRS.
It’s never too late to take action to minimize your business tax liability, and if you haven’t already sought help from a professional tax advisor, now might be the time to do so.