4 Smart Tax Strategies to Protect Your Business From Taxes

Running a business means juggling many responsibilities. Sometimes, you may have to deal with an HR issue, and at other times, you may need to handle a customer complaint. You wear so many different hats that it can be hard to stay on top of less frequent tasks such as taxes.

Every business owner wants tax strategies that will help reduce liabilities and increase savings.

Tax strategies help business owners fulfill their tax obligations without overpaying. Here are four (4) smart tax strategies for business owners:

Assess Your Business Entity Type

Choosing the right business entity shapes your tax liability. For example, sole proprietors, who are self-employed, have to pay self-employment taxes, whereas S-Corporations have pass-through income that is not subject to self-employment taxes.

If your estimated business taxes are high, it may be beneficial to reorganize your business as a different entity. You may want to consider reorganizing your business as an S corporation if you’re paying high taxes as an LLC. A tax professional can help you navigate the ins and outs of different business entity types and to figure out the best structure for your business.

Evaluate Your Accounting Method

There are two accounting methods that you can use to report your business income and expenses. The cash method allows you to report income in the year it is received and expenses in the year they are paid. Or, if you have larger inflows or outflows of cash, such as a retail establishment, you may choose to keep a more formal set of records on an accrual basis, which reports income in the year they occurred, rather than when payment is received.

Both methods have benefits, and you should talk to your accountant to find out which one is best for your business.

Buy assets at year-end

The Tax Cuts and Jobs Act allow businesses to claim a 100% bonus depreciation on new and used assets. For 2023, bonus depreciation has dropped to 80% but still a great strategy to reduce your tax liability. It may be worthwhile to take advantage of this incentive, particularly if profits have been high. To qualify, you must place the equipment into service before the end of the year. So you must buy the assets before the end of the year.

Get advice from a tax professional

You may be someone who checks business news regularly and stays abreast of tax law changes, but even so, you will want to seek out professional advice when preparing your taxes. It is best to pay for a tax advisor to file your business taxes each year. This way, you will avoid mistakes and will not face the steep penalties associated with misfiled or incorrect taxes. Filing taxes can be a time-consuming and expensive endeavor, but these 4 strategies will help you structure your finances so that you can avoid costly mistakes and reduce your tax burden in the coming year.

Do you need help figuring out how to save on taxes? RSK Tax can help you create a strategy that fits your needs.