Many business owners view taxes as a necessary evil. They see it as an expense that must be paid but offers little in terms of benefits. However, this does not have to be the case. There are a number of tax strategies that business owners can use to minimize their tax liability and maximize their profits. Here are some of the top strategies every business owner needs to know.
Points to remember
- Deferral of income involves delaying the recognition of income until a later tax year. This can be done by delaying the invoicing of customers or deferring the receipt of payments. The goal is to push the recognition of income into a future tax year when you may be in a lower tax bracket or when your business expenses are higher, which can offset some of the taxes due. Take advice from start up business accountant before using this.
- The acceleration of deductions strategy involves taking advantage of deductions in the current year rather than deferring them to a future year. This can be done by prepaying for supplies or equipment that will be used in future years or by accelerating capital expenditures into the current year. By taking advantage of deductions in the current year, you can lower your taxable income and reduce your taxes payable.
- The income splitting strategy involves transferring income from a high-income earner to a low-income earner within the same family unit. This can be done by paying salaries or dividends to family members in a lower tax bracket than you. By splitting your income with family members who are in a lower tax bracket, you can reduce your overall tax liability.
- If you own shares of a corporation, you may be able to take advantage of the capital gains rate reduction strategy. This strategy allows you to sell your shares at a reduced capital gains rate if you meet certain conditions, such as owning the shares for at least two years. By selling your shares at a reduced capital gains rate, you can keep more of the sale proceeds and pay less in taxes. Take consultation from small business tax advisor nyc before investing.
- Tax-free investments that are exempt from taxes, such as government bonds, are suitable. These investments can provide you with a return on your investment without having to pay any taxes on the interest or dividends earned. This can allow you to earn a higher return on your investment while paying less in taxes.
- If you use part of your home for business purposes, you may be able to deduct some or all of your home office expenses on your personal tax return. Deductible expenses could include utilities, property taxes, mortgage interest, and insurance premiums paid on your home. In order for this deduction to apply, your home office must meet specific criteria, such as being used exclusively for business purposes and being used on a more or less regular basis.
The parting message
As you can see, there are a number of strategies that business owners can use to minimize their tax liability and maximize their profits. By using one or more of these strategies, you could potentially save thousands of dollars in taxes each year.
