Small Business Tax Tips You Need To Know

Published on: November 30, 2023
Last Updated: November 30, 2023

Small Business Tax Tips You Need To Know

Published on: November 30, 2023
Last Updated: November 30, 2023

You may know the importance of filing taxes annually if you own a small business.

However, filing taxes can be complex, and you may not know what to do unless you’re a financial expert.

Hiring an accountant throughout the year is recommended to help you make savvy financial decisions and prepare you for your tax returns.

But, even if you have the help of an accountant, it’s essential to know the ins and outs of business taxes and learn how to navigate them as a small business owner!

Take a look at some practical small business tax tips to help you this year and potentially further into the future:

1. Open Separate Bank Accounts

It’s worth noting that small businesses should separate bank accounts for business and personal use.

One of the main reasons why having different accounts is important is due to the fact that the Internal Revenue Service (IRS) uses them to determine if a business is run for profit and not just a hobby.

Operating a small business with separate bank accounts can make it easier for you to record your business’ growth and prepare your tax returns.

Additionally, you won’t have the issues of mixing up your business and personal funds if you have separate accounts.

Speak with a financial advisor or an accountant today for more information about having separate accounts as a business owner. 

Retirement Savings Plan

2. Set Up A Retirement Savings Plan

A retirement plan can offer tax savings for businesses just like they would for individuals.

Retirement plans can differ on the investment options available, the amount an employer or employee contributes, the cost of setting up a retirement plan, and other characteristics.

Small business owners can also set individual retirement arrangements for themselves.

It’s important to consider setting up a retirement plan if you don’t have one. Small business owners can contribute up to 25% of compensation to a profit-sharing plan like a 401k.

Sole owners can place up to 20% of earnings into a tax-deferred SEP-IRA account to pay towards their employees’ retirement.

It’s worth noting that with any retirement plan, the contributions you make for yourself or your employees may be deductible.

Call a tax advisor today for more information about setting up a retirement plan as a small business owner.

3. Create A Good Recordkeeping System

While keeping track of your business expenses can sound tiresome, you’re throwing your money away if you don’t record your finances.

How so? Well, business expenses can qualify as business tax deductions if they’re ordinary and necessary! So, if you want to save money during tax time, you may benefit from record keeping all your business expenses!

One way to record your income and expenses is by connecting your financial accounts with a recordkeeping program.

Through that method, you can save time and money by fully automating the process and letting the software do the hard work for you.

However, you need to set up your accounts properly to ensure your transactions are uploaded correctly.

If you’re not a fan of automated processes, you can choose a software program that allows you to input your expenses manually.

In some programs, you can enter your bank statements at the end of the month and record your expenses simultaneously. 

If you’re wondering, “What are the best expense trackers for small business owners?” you can choose from the following list: 

4. Take Advantage Of The Qualified Business Income Deduction

A qualified business income (QBI) deduction is a tax deduction that allows eligible small-business owners to deduct up to 20% of their business income on their taxes.

Business Income Deduction

You don’t have to do anything special to qualify through this deduction program. If your business income is at or below $182,100 for single filers or $364,200 for joint owners, you may qualify for the 20% deduction on your taxable income!

However, it’s worth noting that you may have to complete some tests if your income is over the qualifying limit.

An example of a test you could get is to answer the question, “Is your business a specified service trade or business?” If you answer “yes,” you may qualify for an income deduction, but the qualifications may differ as time goes on.

But, if you answer “no,” you may have to complete additional tests to determine how much you can claim from the deduction. 

Don’t hesitate to contact a financial expert to learn more about QBI deductions and what tests you must complete if your taxable income is above the qualifying limit.

You may be able to reduce your tax bills if you know what you must do before you apply for a QBI deduction!

5. Take Advantage Of A Home Office Deduction

If you’re a small-business owner who works from home, you can take advantage of a deduction program when you devote a portion of your property to your business.

To qualify for a home office deduction, you must exclusively and regularly use part of your house or a separate structure as your primary business.

You can’t share a bedroom, for example, and use part of it as your office to qualify for this deduction. 

Assuming you qualify for a home office deduction, you can choose from one of two methods to calculate your proceeds.

You can multiply the square footage of the space you use as your home office by $5 or multiply eligible home expenses by the portion of your home used for your business. 

Conclusion – There Are More Small Business Tax Tips

Finding the right small business tax tip can be difficult. You must analyze each option carefully and decide which works best for you.

But be aware that other strategies can help you lower your tax bill! Simply do your research and decide on which tip to go with. 

What if you need money right now for an emergency? If you don’t have readily available funds, you can apply for a title loan online! Talk to a title lender today for more information.

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Written by Allison Langstone

Allison produces content for a business SAAS but also contributes to EarthWeb frequently, using her knowledge of both business and technology to bring a unique angle to the site.