Taxes can be expensive. As every small business owner knows, every penny counts. There are a lot of expenses to take into account and plan for, and if there are ways to decrease them, it’s worth looking into. Fortunately, when it comes to business taxes there are a few things small businesses can do to reduce their tax liability and pay fewer taxes.
Start an Employee Retirement Plan
One of the things businesses can do to reduce their taxable income is to set up an employee retirement plan. This benefits businesses in multiple ways, such as making them more attractive as an employer, as well as potentially making new tax credits available. 2019 saw the passing of the SECURE Act which incentivised retirement accounts provided by businesses to their employees. It makes this benefit more affordable. If you were thinking that offering your employees a retirement plan is too expensive, you may want to run the numbers again.
Change the Structure
Did you know that different business structures are subject to different taxation? You may have learned about this when you set up your business, but maybe your circumstances have changed to the point where a different structure is a better fit. It’s possible that by changing to an LLC you may be able to cut your tax bill. If your small business is organized as a sole proprietorship, you’ll need to take a few steps to make that transition. You need an EIN before you can register your LLC with your state government. You’ll also need to make sure the name you choose for your business isn’t already being used or is trademarked. LLCs are subject to state laws, so you’ll need to check with your state to see what the requirements are.
Consider Hiring Family
Hiring family members to work for you can help reduce the taxes you owe as well, as long as you do it right. Hiring your children or spouse may mean you don’t have to pay some of the various payroll taxes. Some of these tax reductions are based on age, so make sure you know how age restrictions apply. If they’re enrolled in retirement plans, those contributions will also reduce your business’s taxable income. There are laws that govern taxing or not taxing members of your family, so make sure you understand what the regulations are so that your business is in compliance.
There are multiple things you can do to reduce your business’s tax liability. Hiring family members, choosing the optimal business structure, and investing in employee retirement plans are just a couple ways you can do this. See what other options are available to you and what will work best for your business.
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