The best way to profitability is by minimizing the company’ tax liability. Profitability aside, taxes have a significant impact on small businesses and it’s important to understand how they work to both avoid penalties and interests due to errors, as well as to identify areas where they can be lowered.
- Small Business Taxes
The taxes you pay and how you pay them depend on how you set up your business. All businesses have to pay an income tax. Moreover, small business owners who expect to owe at least $1,000 in taxes so they need to estimate and pay quarterly taxes. Things can become unpleasant if they don’t pay them, or don’t pay enough, as there will be penalties and interest coming their way. There is also property tax If the business owns a property and sales taxes if the business sells things. Things get even more complicated in the online word as some states charge based on where the seller is located, while other states charge taxes based on where the buyer is located.
- Tax Tips for Your Business
It is important to consider all strategies that could help you reduce your tax liability.
- Check if your business may qualify for different tax treatment that could save you money
- Create a smart plan for paying taxes that least disrupts your operations
- Set up a retirement savings plan
- Take advantage of significant deductions for equipment
- Defer expenses and accelerate income—or vice versa
- Make charitable donations to qualify for tax deductions and strengthen your brand image
- Find the silver lining in your losses and make the most of them
- Understand how PPP loans will be taxed as under some circumstances, they can be forgiven.
- Consider when to pay back payroll taxes
- Tax Deductions and Credits for Your Business
What business owners like to hear even more is tax credit” but they often confuse it with ‘tax deductions’. But tax credits are even better than deductions.
Tax credits are given to businesses and individuals as incentives for certain kinds of activities. One example is by investing in making the business greener. Moreover, green behaviors such as energy efficiency can help to lower your United Illuminating monthly costs. Tax credits are superior to tax deduction in terms of savings. Credits are deducted from income before gross before-tax income is determined whereas tax deductions come at the next stage of the tax process, reducing the net taxable income.
Below are a few tax credits that small businesses can take advantage of:
COVID-19 tax credits
The first is an employee retention credit so businesses are incentivized to keep employees and the other is to help employers pay for sick leave and family leave for employees affected by COVID-19.
Small Business Health Care Tax Credit
The Affordable Care Act (Obamacare) includes a small employer health insurance tax credit to encourage small employers to offer health insurance for the first time or maintain coverage they already have.
Research and Development Tax Credit
Small businesses often don’t realise they can qualify for this credit as you don’t have to be in a large company to conduct valuable research on product development, studies, improving existing product and their functions or overall business performance.
Access for Disabled Persons Tax Credit
Any business that adjusts its operations to accommodate employees and customers with disabilities qualifies for this credit, as long as it earned $1 million or less and had no more than 30 full-time employees the previous year.
Green practices
Making your business more energy-efficient makes you eligible both for tax credits and deductions. There are also tax credits for buying all-electric cars or hybrid vehicles that benefit the environment. Going green has many benefits for your business as studies have also shown a higher job satisfaction for employees who work at a green company.
Takeaway – There’s no denying that business taxes are a hassle. Most small-business owners spend up to 120 hours every year on bookkeeping and taxes instead of using this time to focus on their customers or on developing their business. But, if you do your homework and identify areas such as going green, you can unravel abundant opportunities for reducing your tax liability which in turn will directly improve your business’ profitability. Additionally, you may consider hiring a professional tax advisor like Busy Bee Advisors.