How Can Your Small Business Avoid Paying High Taxes

Taxes are a necessary evil for any small business owner and will often be one of the most stressful times of the year. Not only is it a strenuous process that requires diligence and time, but there’s that lofty tax bill at the end of it — as if that’s supposed to be some kind of reward for filing. 

If it seems like your taxes are only getting more expensive as your business grows, that’s because they are. While the tax system is set up in a way where the rich pay the most, there are also a wide variety of ways a small business can reduce their yearly tax bill. This can help you save money come tax season and ease a majority of the stress that comes with it. 

If you’re wondering how your small business can avoid paying high taxes every year, we have some tips that will be of interest to you. Follow along to see if you’ve been doing everything you can to reduce your tax bill. 

Tax Deductions

As a small business owner, you’re probably well aware of how tax deductions work. Depending on what you purchase throughout the year, there’s a good chance it can cancel out some of your taxable income if it was used for the business. This is how many people lower their tax rates every year. 

Tax deductions come in many forms. While every owner knows about them, very few will know how to fully take advantage of them. The tax code is several thousand pages long and there are plenty of deductions you have no idea about. 

Retirement Plans

Planning for your retirement is one of the most rewarding ways of reducing your taxable income every year. It’s a win-win situation because it allows you to avoid paying high taxes now, while also saving for the future. 

Most business owners won’t understand this, but the money you put into a 401k, IRA, or HSA can be deducted from your taxable income. For example, you can put away up to $19,500 every year in a 401k and another $6,000-$7,000 in an IRA.

In total, the IRS will allow you to put up to $57,000 towards your retirement every year — all of which is non-taxable. 

Change of Business Structure

One of the other notable ways you can avoid paying high taxes is by changing your business structure. This is something most business owners won’t think about, especially once they get in a groove with the business they’ve built. 

The truth is there are certain business structures that can save you money come tax season. For example, changing your business structure from an S type to a C corporation can help you keep the flat 21% tax rate. 

If you’re a business owner that’s looking for relief come tax season, you’re not alone. In fact, we help a variety of businesses find enjoyment when taxes roll around and we’d be happy to assist you as well! Feel free to contact us at any time to receive a free consultation. 

References

John P. Schmoll, Jr. “5 Little Known Ways to Reduce Small Business Taxes.” Investopedia, Investopedia, 1 Mar. 2020, www.investopedia.com/articles/personal-finance/120415/5-little-known-ways-reduce-small-business-taxes.asp.

Weade, Casey B. “5 Tax Strategies for Small-Business Owners.” Www.kiplinger.com, Kiplingers Personal Finance, 22 Nov. 2018, www.kiplinger.com/article/taxes/T049-C032-S014-5-tax-strategies-for-small-business-owners.html.