We would have been officially late submitting our taxes if the world had been considered “normal.” There are significant tax loopholes that every small company owner should explore to save money throughout tax season, whether you file early or late from My Tax Team.
Some essential tax loopholes are as follows:
- Save money this year by deferring income.
Tax rates are subject to change at any time. Suppose you’re the best CPA in Dallas with no prior understanding of accounting, taxes, or money. In that case, it’s critical that you either:
- educate yourself as soon as possible or
- hire an experienced accountant who can correctly guide you.
This, in turn, lowers the amount of tax they must pay.
Of course, this is contingent on various variables, including predicted income or losses and future tax rates. By delaying part of the revenue you anticipate getting from December 2019 to January 2020, you are effectively deferring some of the money you expect to earn from December 2019 to January 2020.
- Consider deferring major business purchases until the end of the year.
You’ll need to enhance your equipment and operations to manage and expand your firm. However, try utilizing another tax loophole by deferring significant company expenditures until the end of the year.
Why? Small business entrepreneurs have a bias towards buying depreciating assets. You may claim an entire year’s depreciation sooner if you do it this way, even if you’ve only possessed these products for a few weeks or days.
- Don’t Forget About Deductions for Your Home Office
If you didn’t know, home office deductions are a tax break that can account for a significant portion of your total qualifying small company tax deductions each year. Although keeping track of these necessary deductions should be a year-round practice, it’s especially vital to bring it up during tax season.
Rent, mortgage, property taxes, utilities, phone, and house insurance are all items that can be used to deduct a percentage of your taxes. While you can’t claim all of these expenditures, claiming a fraction of them yearly can help you reclaim thousands of dollars that should have been yours, to begin with.
- Using a Medical Reimbursement Plan, you can deduct medical expenses.
Medical costs paid out of pocket are usually not tax-deductible. On the other hand, business owners can create a Medical Reimbursement Plan, in which the company reimburses all medical expenditures. Non-deductible medical costs become legal company expenses by taking advantage of this tax loophole.
- Splitting the Family Income
Another legal option for small company owners to avoid paying higher tax rates on high-margin revenue is to share their money with their families. Hiring a son or daughter might help you save money on taxes.
If a small company owner earns $70,000 per year, all of their earnings over $37,450 will be taxed at 25%. By sending $35,000 of that income to a son or daughter employee of the company (who may subsequently use it for living costs and college tuition, for example), the entire $70,000 income will be taxed at a rate of 15% or less.
- Vacation costs as a business expense.
The travel expenditure linked with a vacation might become tax deductible if it is planned in conjunction with business travel or vice versa. This strategy works wonders for specific firms.
Suppose a small business owner wants a tax-deductible flight to Las Vegas, for example. In that case, they may make a lowball offer on commercial real estate in the Las Vegas region on behalf of the company.
In the best-case scenario, the company may buy a great piece of real estate for a low price from a desperate seller. However, even if the offer is turned down, the trip to Vegas is still considered a business trip, and the airline and hotel costs can be deducted as a business expense.
- Obsessive Search for Organized Deduction
Lastly, becoming truly obsessively prepared about tax deductions shows up on the odd small company owner’s tax return.
Not because the loophole is weak, mind you. Instead, exploiting the loophole involves more upfront effort and continuous upkeep than most small business owners have.
Take Advantage of Small Business Tax Credits as a Bonus Tip
As a small company owner, one smart strategy to optimize your tax refund is to apply for every My Tax Team you qualify for. The IRS provides tax credits to firms that meet specific criteria, such as hiring veterans, establishing a retirement plan, providing child care to employees, or constructing an energy-efficient system.
Unlike tax deductions, which lower the taxable income, tax credits immediately reduce your tax burden. For a list of credits available to your company, go to IRS.gov’s Business Tax Credits website.
Bottom Line:
These are just a few small business tax loopholes that may be used to take advantage of possibilities buried in the tax code.
This last point, however, is critical: To take advantage of these loopholes, proper preparation and payroll services to laws are essential, which no small company owner should do without the assistance of a tax specialist.
