What Small Businesses Should Know About Business Taxes

Paying taxes as a small business owner is a game of chess. There are loopholes and strategies for making sure you save the most money. While entrepreneurs can do their own taxes with software, hiring an accountant familiar with tax law can allow your company to get the most deductions. It’s important to consider how every day business behaviors and decisions affect your business tax bills. Everything from the type of employees you choose to where you do business can shift tax obligations up or down. Here are five caveats small businesses owners can follow to save money.

Make sure you don’t owe out-of-state taxes

Small businesses often have customers beyond their home state, thanks to an Internet presence that can reach audiences across the country and globe. Income generated from clients in other states is usually untaxable by those states, due to Public Law 86-272, which protects companies that simply deliver goods and services to a state but have no presence in that state. However, since online digital sales have expanded, many states are enacting laws to capture taxes from out-of-state merchandisers. Check with your accountant to see if your business falls within the protections of Public Law 86-272. There are restrictions: you can’t have out-of-state employees, can’t have out-of-state property and you can’t provide after-sale service and support to customers out of state. Some states are sending questionnaires to businesses and at-home workers to catch companies they think may be employing someone in a state where they aren’t paying taxes.

 

Keep Proper Expense Records

While big capital expenses generally reported at tax time, some small businesses are lax when tallying smaller business expenses.  A ream of computer paper, an ink cartridge, a subscription to a professional organization, a trip to meet with a new client, utility bills, domain renewal, online and off-line advertising: all these things are expenses that can be deducted. Keep track of these expenditures not only on a profit-expense spreadsheet, but by saving every receipt, noting details of what was purchased and why. Organize receipts monthly. You can keep hard copies in a folder or scan them into the computer to file digitally. If you ever have to explain a deduction during a tax audit, you’ll be grateful for the curated evidence.

Reduce Your Taxes by“Being Green”

Tax incentives for eco-friendly businesses exist at both the state and the federal level. To take advantage of tax credits, install solar panels in the office to reduce electricity usage. Buy energy-efficient equipment, such as furnaces, lighting, special doors, air conditioners, water coolers and refrigerators. Many businesses buy such equipment anyway, so why not choose efficient technology?Use recyclable materials and buy furniture made from recycled materials.  Set up recycling bins for paper, cans and bottles. In addition to allowing credits for businesses, some states allow entrepreneurs to use the credits on personal income filings.

Don’t Pay the Government when Customers Don’t Pay You

Sometimes small businesses encounter customers who are dead-beats. They arrange to receive a product or service and then don’t pay. An accountant may be able to deduct money owed to you by customers even though the sales transaction has to be reported as income.

Save Money with Creative Employment

Small businesses can save money when they employ independent contractors instead of employees. If employees must be hired, save money by hiring your progeny. Many entrepreneurs hire their dependent children and pay them by legally shifting profit from the business into Roth IRAs in their sons’ and daughters’ names. The owner-parent can also save money when filing federal tax returns by receiving larger deductions for dependents because those dependents are earning wages.

About the Author: Brett Gold has been in the legal field for over 20 years. He spends his time writing and recommending people like Hays Firm in Chicago. When he’s not working, he likes to stay in good shape and is actually going to run a marathon this year.