What Are The Best Small Business Tax Loopholes?
To maintain and grow a small business could be the most challenging task of your life. The fact is, every cent and added value in a profit margin is a victory.
Taxes will always remain relevant whether you’re fighting for a market share or dealing with internal issues in the firm.
And when you calculate your taxes in haste, running a small business could become even more expensive. Additionally, by finding legal loopholes have a good grasp of the tax code, your business operations could run more smoothly.
Besides, tax laws can change over time and business owners should always be on the lookout to take advantage of any possible tax loophole.
Small businesses shouldn’t be in the habit of sitting out one tax year after another. Simply act upon the given information and the save the maximum amount of money on each year’s business tax return.
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What are the Best Small Business Tax Loopholes?
Here are some of the best small business tax loopholes that can make a big difference for you in the long run:
The Perks of S Corporation Status
Small businesses could benefit significantly from an S Corporation status. The owners get the opportunity through S Corporation status to divide profits into wages and dividends.
The process allows employees to have their wages on nominal market value and use dividends to pay the remaining difference in profits to avoid 15% payroll tax.
For instance, let’s assume an S Corporation makes $500,000 a year in profits and will have to pay $200,000 of the total profit as wages. Now, the same corporation could pay out the remaining $300,000 on dividends and save approximately $45,000 per year by simply not paying the 15% tax.
Understanding State Tax Spectrum
Small business owners have to understand that the tax code varies from state to state.
And certain factors establish the spectrum that makes necessary exceptions for businesses to not pay excessive state taxes.
From navigating through property laws in a particular state, booking sales, to hiring employees in the state, all make up as a spectrum to help make decisions for flexible tax plans.
Utilizing Medical Reimbursement Plan
Generally, your medical expenses have nothing to do with tax deductibles, but small business owners could take advantage of Medical Reimbursement Plan. They can turn over these medical expenses over to business reimbursement.
This tax loophole essentially transfers your medical expenses to legally binding business expenditures.
Splitting Family Income
The family income split loophole allows small businesses to avoid paying high tax rates on their marginalized income. And hiring your son or daughter can actually relax the overall tax burden.
For example, if you earn $100,000 per year as a small business, you would have to pay 25% tax on the entire amount. However, you could transfer $50,000 of the total income to your employed son or daughter and could pay 15% lower tax rate on the original amount.
Take Care of Variation Cost
By combining business travel and vacations, the entirety of travel expenses could become tax-deductible. Similarly, business owners could have a tax-deductible meeting with a client by simply making the reservation on the business account.
Making the Most Out of Small Business Tax Credits
Whether tax credits should serve as loopholes or not is still debatable. Small business owners should still take advantage of this loophole.
The IRS can help you make necessary tax adjustments once you reach initial business objectives, like making a retirement plan, arranging child care services, or hiring a veteran. And the trick is to apply for every possible tax credit at your disposal.
Also, small businesses should be able to make a clear distinction between how tax deductibles decrease entire taxable income, whereas tax credits lower the tax burden.
Implementing a Tax Filing Software
Although utilizing a tax filing software isn’t directly a tax loophole but leading entrepreneurs in the past gained more valuable tax insight.
Tax platforms, such as TurboTax and TaxSlayer, protects small businesses through their efficient online tax return filing mechanism. Meanwhile, they can also secure the same files via cloud storage for further evaluation.
These platforms can instantaneously resolve small tax hurdles that might be hard to identify manually. Moreover, a tax filing software can help you reimburse any penalties or fees as well as ensure refund guarantee on the return.
Also, tax filing software can even help you identify deductions for carryovers, such as home office deductions, total capital losses, charity contribution, and net operating losses that may not be eligible for rolling over from one tax year to another.
Deduction of Car Expenses
Small business owners can choose the mileage rate or total car expenses plan from the IRS. Furthermore, you could select the plan by calculating the percentage of the time car you use the car for work, and apply the difference in percentage to your general car expenses.
The total cost incurred on the car expenses could vary depending on the model of your business However, leading small business owners regularized the use of this loophole in their business operations.
The aforementioned are just some of the best examples used by small businesses to find tax loopholes.
However, the black and white quality of these tax loopholes may be attractive, but small businesses should seek guidance from tax specialists. And to avoid finding yourself in a rushed judgment, the guidance of tax experts may even present new favorable possibilities for your small business.
You can save a sizable amount on your business tax return with the help of legal and other business tax loopholes. The focus of every small business should be to move on to the next tax year (2020) instead of dwelling in the past.
And only by looking to the future, you can have more tax saving opportunities.