EA - Tax Savings Secrets Every Business Owner Needs to Know

Tax Savings Secrets Every Business Owner Needs to Know

Most business owners agree that taxes are the most expensive and stressful part of running a company. Not only do you need to track ongoing expenses and write-offs, but you also need to pay attention to paperwork and payment deadlines throughout the year. Even though tax savings can take a bit of work, it’s worth the effort because of the reduced tax liability.

When working as an employee, you probably didn’t think much about tax calculations since your own taxes were automatically withheld from your paycheck. On the other hand, self-employment is a whole different ballgame since you need to calculate profits from your business and remit payments quarterly. Other tax responsibilities come into play, including employee taxes, sales tax, and more.

Taxes are inevitable, and everyone needs to pay. But the amount you are paying can be reduced if you are diligent about a good tax strategy. As a small business owner, you can save thousands of dollars per year on taxes, helping to optimize your profit margins.

Designing a Tax Plan

One of the biggest mistakes you can make is failing to design a tax plan for yourself and your small business. You know the tax bill is coming, so you need to be sure there is enough money in the bank to cover the costs. At the same time, your tax plan should be custom-designed based on the needs of your business. The smartest decision you can make is hiring an experienced accounting team to assist with tax savings and planning.

One important point you need to keep in mind: there is a BIG difference between tax evasion and tax planning. We are not talking about deliberately underpaying on taxes… tax evasion is an illegal practice and can result in serious consequences! Instead, the right tax savings plan is built on leveraging the guidelines established by the IRS so you can take advantage of all available tax write-offs.

Your tax plan should include systems that help with tracking transactions, including both expenses and income. These details need to be calculated to determine how much you owe after business expenses are factored in. Then, you need to have a strategy in place that keeps you current with the owed taxes, as well as the paperwork and reporting that needs to be submitted throughout the year.

What is the Difference Between Tax Planning and Preparation?

Some people talk to their accountant once a year for tax services. When the accountant assists with your paperwork and filing in April, this service is known as tax preparation. While tax preparation is an important service, you are missing out if you aren’t working with an outsourced accounting team that also assists with tax planning.

Here is the difference in services:

  • Tax Preparation: This accounting service is focused on the preparation and filing of annual tax returns. You provide the financial records, and then the accountant works through the numbers to calculate the amount that is owed. These services are provided to ensure that you are maintaining compliance with the IRS. Most people only use tax preparation services.
  • Tax Planning: On the other hand, tax planning involves ongoing services and analysis based on the business financial details throughout the year. Instead of only talking to your accountant once a year, you have the opportunity to work hand-in-hand with an outsourced accounting team that can guide your financial strategies and processes all year long. The goal is to minimize tax liability and ensure that you are ready when it is time to prepare your annual taxes.

To put it simply: tax planning helps you reduce the amount of money you spend each year on taxes. Tax Preparation is the service to prepare your paperwork and numbers for submission to the IRS each year.

If you haven’t had a direct conversation with your accountant about tax planning and reducing your tax burden, then it is likely that you are only receiving tax preparation services, not planning services.

Tax Saving Strategies to Reduce the Amount You Owe

Now that you understand the difference between tax preparation and tax planning, what is an actionable way that you can change your financial practices to reduce the amount that you owe each year? It all comes down to your ongoing strategies regarding expenses, tracking, and more. Your outsourced accountant can offer guidance and insights regarding a proven system that can streamline your finances.

Here are a few important strategies that every business owner needs to follow:

  • Track Receipts: It seems obvious that you need to hold onto receipts for business expenses. But it’s easy to let small receipts fall through the cracks. If you don’t have an awareness of how much you are spending on business costs, then it is likely that you are missing out on transactions that could be calculated as deductions. You need to know how you spent your money. Proper organization and tracking of your receipts ensure that your deductions are logged, giving you accurate information for your tax filing. Not only does this process help you maximize the deductions, but you also have documentation in case the business is audited. The IRS will request paperwork to prove the validity of these deductions.
  • Don’t Pay Late Fees: Missing a tax payment is not only a hassle, but it can be an expensive mistake when you add up the costs of late fees, interest costs, and more. If you aren’t paying attention to the quarterly tax payment schedule, then you could be doing yourself a disservice by adding unnecessary fees on your tax bill. The simplest solution to ensure that you don’t miss tax payments is to enlist the support of an experienced accounting team that can help with tax planning and implementation.
  • Business Restructuring: The way your business is structured will impact the amount you are paying in taxes. You need to consider the structure of your business entity and the way taxation deductions and policies affect annual calculations. The rules and forms change, depending on the way you choose to structure the company. Even if you’ve had the same business entity for years, it doesn’t mean that the structure is still the right answer for your tax planning. Talk to your accountant about the various options. It might make sense to restructure based on your bottom line and long-term goals.
  • Use the Right Accounting Software: Calculating tax deductions by hand is not only time consuming, but it also increases the risk of mistakes. You can save yourself hours of time by using a tax preparation and filing software that handles the automatic calculations for you. Choose a cloud-based software so your outsourced accounting team can access the reports remotely to assist with your tax planning strategy.
  • Retirement Accounts: Since you own a business, you have the benefit of certain retirement strategies that can be used as tax deductions. For example, you can reduce your reported income by contributing to an individual retirement plan, such as a 401k or an IRA. Some of these accounts need to be opened by the end of the year to qualify for the deduction. Other types of retirement savings accounts can be used with delayed payments for the previous tax year. For example, you can contribute to the account in the early months of 2020 and have the contributions count for your 2019 tax calculations.
  • Healthcare Costs: Also consider ways you can save taxes on money used for healthcare needs. Medical costs are always increasing, and you need to be ready with the cash for future bills. A Health Savings Account (HSA) can be opened to be paired if you have a high-deductible health plan. This strategy allows you to deposit money pre-tax into the account. Keep in mind that money deposited into an HSA account can only be used on qualified medical expenses.
  • Travel Expenses: Do you often travel for both business and pleasure? If you have a justifiable business purpose for the trip, then you can write off the travel expenses. Business owners often look for ways to pair their personal time with business travel, giving them the benefit of writing off a portion of the flights, food, hotels, entertainment, and more.

Of course, this is not a comprehensive list of tax savings strategies. There are other ways that you can maximize your tax deductions to reduce tax liability. Every situation is unique, which is why it is important to work with an experienced outsourced accounting team for assistance.

Need Help with Your Tax Savings Strategy?

You don’t have to go through the headache and hassle of trying to decipher tax law. Instead, our experienced team at Easier Accounting is here to help. We specialize in small business tax preparation and planning, and we’re just a phone call away if you have questions about your taxes. You are invited to contact us at your convenience to learn about the various strategies that can be used to streamline your tax strategy and minimize the amount that is paid in taxes each year. Call us for more information: (888) 620-0770.

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