Being a small business owner means wearing multiple hats. You’re likely more focused on running your baby organization than optimizing your accounting and tax efficiency. What if we told you you have several feasible options for lowering your tax bill through popular small business tax deductions? Yes, you heard that right. And in turn, you can channel these savings back into your business for further investment and growth.

From maximizing retirement contributions to paying for your health insurance, below are some effective tax strategies your small businesses can implement today to save money.

Utilize Startup Deductions

Leading accounting and tax experts in Fort Mill state that if you recently started your small business last year, you can use a few deductions available only to help young companies as they navigate pricey startup expenses. You can deduct up to $5,000 in startup costs and $5,000 in organization costs if your total startup expenses are under $50,000. For expenses between $50,000 and $55,000, you’re eligible for a partial deduction, reduced by the amount over $50,000.

Hire Family Members

According to the leading tax consulting and bookkeeping services in Tega Cay, hiring a family member is one of the smartest ways new businesses can reduce their tax bills. There are plenty of options that the IRS provides for this. For instance, you can hire your children to shelter your income from taxes. Income paid to your children often incurs a lower marginal tax rate, and in some cases, the tax can be entirely eliminated. If your company is registered under sole proprietorship, your kid’s wages are exempt from social security and Medicare taxes. You just need to ensure that the earnings are justifiable for business purposes. 

Additionally, hiring a spouse can lead to tax reductions as their earnings wouldn’t be subject to the Federal Unemployment Tax Act (FUTA).

Structure Your Small Business as an LLC

Top tax preparation and advisor firms in Rock Hill reveal that registering the structure of your young business as a Limited Liability Company (LLC) can provide you with multiple tax advantages, including the famous and lenient pass-through. As the owner, your business income passes to you and is taxed at your personal income tax rate. This helps you avoid double taxation and save on Social Security and Medicare taxes.

Account for Business Losses

Leading accounting and bookkeeping specialists in Fort Mill, SC, reveal that keeping track of your business losses is an excellent way to reduce the amount of taxes you owe annually. Business losses can be deducted from income, often lowering your company’s overall taxable income by thousands of dollars. This could potentially save business owners significantly more money compared to only deducting personal items like home mortgage interest or charitable donations.

Maximize Retirement Contributions

Adding to a retirement plan is not only an investment in your future but also good for your tax rate. Top tax advisors, consulting, and preparation specialists in Rock Hill reveal that contributions to a 401(k) are deducted from pre-tax income, resulting in a reduced monthly salary for each pay period and potentially lowering your overall tax rate.

Small businesses can request reimbursement for setting up and administering each 401(k) plan, up to $500 annually, for the first three years of the plan’s existence. Offering this benefit is also advantageous for your employees.

Deduct Your Vehicle

New businesses can deduct the entire cost of an automobile weighing over 6,000 pounds, such as a light truck or a sedan. If that stands true on your part, you can write off up to $18,000. You must utilize the vehicle for business purposes. However, if the truck or van is used equally for business and personal reasons, you can deduct 50% of the expense.

Take advantage of the qualified business income deduction.

Depending on your small business’s structure, you can claim the Qualified Business Income deduction, more popularly known as the Section 199A deduction, which allows eligible self-employed entrepreneurs and small business owners to deduct up to 20% of their overall business income.

Top accounting and bookkeeping services in Fort Mill, SC, reveal that eligibility depends on the filer’s taxable income, and single files must be below $182,100, and joint files must be below $364,200, including the net income, deductions, gains, and losses from a business or trade. Those above this income will notice a reduced deduction. Yet, the deduction isn’t accessible for specialized service businesses or trades like doctors, lawyers, and consultants that surpass a specific threshold.

Pay for health insurance.

While there’s no denying the fact that buying health insurance can be pricey, luckily, the IRS offers special advantages for self-employed entrepreneurs who pay for their own insurance! Leading bookkeeping and accounting experts in Fort Mill, SC, state that if you pay for your own health insurance and work for yourself, you can lower your tax bill.

If you’re self-employed, like a freelancer, contractor, or gig worker, and you don’t get health insurance through your spouse, you can claim the self-employed health insurance deduction. This helps cover the cost of your premiums, unlike those who get coverage through their jobs and split the cost.

If you meet the necessary requirements for claiming this convenient deduction, you may be able to deduct all or bits of your insurance premium. The adjustment you claim is typically restricted to your net profit from the business or trade under which the insurance plan is established. This can significantly lower your tax bill, saving you extra money each year you qualify to claim the deduction.

Final Takeaway

With Abacus Tax & Books, get unlimited expert help while you do your taxes, or let a tax expert file everything for you, start to finish. Get direct access to small business tax experts who are up to date with the latest federal, state, and local taxes. 

Our credible, experienced, and efficient team provides the expertise required to ensure the smooth financial management of any small to medium local business. With years of experience in the industry, we work with our clients to discover a strategy that aligns perfectly with their specific necessities, budgets, and goals. Our exceptional client care, quality services, and tailored solutions have made us the premiere choice for small businesses across various sectors and industries. 

If you’re struggling with your bookkeeping and accounting, facing troubles with the IRS, or need assistance with your quarterly tax estimates, Abacus Tax & Books can help. Contact us at 803-548-1099 to schedule an appointment with our team today.