Small businesses in Shelby County often face several financial constraints, which makes paying hefty taxes a bit challenging. Moreover, hiring a full-time CPA is also not financially feasible for small businesses and startups.
While tax obligations make it compulsory for small businesses to pay taxes, professional tax services offered by Shelby County, Alabama professional tax services play a vital role in supporting the local small business community. They employ several ethical tactics and ensure that your small business saves as much tax as legally possible.
Going through different tax-saving strategies for small businesses
While businesses can leverage several tactics to maximize tax savings, the following ones are regarded as the top tax-saving strategies for small businesses-
Home office deductions
As per the IRS’s provision, homeowners and tenants can claim home office deductions for using their residential places as home offices. Therefore, even if your place is on a lease, you can claim home office deductions applicable to almost all types of homes, including studio apartments or houseboats.
Deferring income to reduce the taxable income
Deferring your income from the last month of the calendar year to the first month of the upcoming calendar year can also save you a significant amount on taxes. It’ll reduce your taxable income for the given calendar year and you’ll end up paying less tax than the actual.
Increasing contributions to your retirement plan
Contributions to tax accounts like traditional IRAs, Roth IRAs, 401(k), etc. are tax-advantaged. This means that either contribution to these accounts or withdrawal from these accounts may be considered tax-deferred.
Here’s how much you can contribute to different retirement accounts:
- Up to $22,500 in a 401 (k) account,
- Up to $6,500 in all your IRA (individual retirement account), including Roth and Traditional
Paying your debts
Paying off debts is another good way for small businesses to minimize taxes. While loans are not taxed the same as business income, tax may be levied on interest payments. Writing off a bad debt can also save you taxes as it reduces your income for the given year. However, you’ll have to reverse the write-off if you are able to collect a bad debt in the future.
Change your business to a Limited Liability Company (LLC)
Small business owners can benefit from changing their business structure and making their company an LLC, as this can reduce the corporate income tax to 21%. It’ll also enable your small business to be taxed as a C-Corporation with form 8832 of the IRS.
Health insurance payments
Health insurance payments made by a self-employed person are also considered tax deductible. These may include various types of insurance premiums, dental, vision, long-term care, etc. Moreover, you can also take advantage of business income deductions up to 20% of the business income.
