5 Tax Tips Every Small Business Owner Needs to Know

 5 Tax Tips Every Small Business Owner Needs to Know

Small businesses pay up to ten different types of taxes, from business income taxes to sales taxes.

The world of taxes is confusing and frustrating for business owners. It’s hard to figure out what deductions they can claim and those deductions change annually.

If you need help navigating taxes, this article has you covered. Read on to learn the top tax tips to apply the next time you file taxes.

1. Choose the Right Legal Entity

About 75% of small business owners report their business profits on their personal income taxes. You may pay more in taxes than you need to because you don’t have the right business entity.

For instance, a sole-proprietor pays 15.3% in self-employment taxes as well as their federal income taxes. You might be able to save money by becoming a single-member LLC that’s taxed as an S-Corp.

In that case, you pay tax on the distributions of the profits. That can reduce the amount of money you pay in self-employment taxes.

2. Home Office Deductions

Small business owners who use a portion of their homes as the primary place of business can write off home office expenses. This lets you deduct a percentage of your rent or mortgage payments, utilities, insurance, and other home expenses.

You can take a flat $5 per square foot of space used for business or divide the space used for business by the total square footage of your home.

The IRS only allows the deduction if you use the space only for business purposes.

3. Leave the Work to Professionals

Do you want to know the best tax tip for small business owners? Hire a professional tax preparer to do your taxes.

It’s very easy to make an honest mistake on your taxes. You could claim the wrong deduction or make an error that triggers an audit.

There are affordable firms like https://www.taxfyle.com/tax-preparation-outsourcing that specialize in small business taxes.

4. Section 179

Did you purchase equipment, computers, or office furniture this year? Under depreciation rules, you would deduct a portion of the expense over several years.

However, Section 179 in the tax code allows you to deduct the entire amount of the purchase.

5. Healthcare Deductions

Do you get your health insurance plan through the Healthcare Marketplace? There are some tax implications to know about.

The Affordable Care Act provides tax credits to apply towards health insurance premiums. This drives down the cost of health insurance, but it’s based on your income.

If you make more money than expected during the year, you may have to pay back the tax credit. If you make less, you may get a tax credit refund.

There were additional changes to the tax credits in 2021. Check with your tax professional to see how these changes impact your taxes for the year.

Simplify Small Business Taxes With These Tax Tips

It’s hard to know when you should do with your small business taxes. These tax tips help you make sense of deductions and how you can avoid audits.

Don’t try to do taxes on your own. Get help from professionals. You’ll have peace of mind and can save money on your taxes.

For more helpful tips, check out the other articles on this site.

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