10 Helpful Tax Tips for Small Businesses

1.     Keep Thorough Records & Save Your Receipts

Don’t let the idea of expense tracking overwhelm you and tackle it head on.  If you don’t keep up with your business expenses, you’re basically losing the opportunity to save money. Business expenses qualify as tax deductions when they are “reasonable, and necessary” expenses. So, while throwing a party for an employee won’t count as a business deduction, the $100 you spent on a rush-hour rideshare to make it to a business dinner would.

Deductions don’t offer the same dollar-for-dollar tax bill reduction as credits. Instead, they lower your taxable income. You pay business taxes based on your company’s taxable income. So, taking advantage of deductions is one of the best ways to reduce your taxable income, and, in turn, lower your tax liability.

Say your business has $100,000 in revenue and $70,000 in deductions, yielding $30,000 in taxable income. Your tax liability is $30,000 multiplied by your tax rate, which fluctuates based upon income level. If you’re unsure whether an expense counts as a business deduction, save the receipt, do some research, and talk to a tax professional.

2.     Separate Your Business and Personal Finances

One of the first things you should do when starting a small business is create a new bank account. Having separate bank accounts for both your business and personal transactions makes things easier come tax season. Not only will you have accurate records for the expenses you’re writing off, but your personal transactions will be kept private.

3.     Set Up a Retirement Account

Whether you’re the sole member of your business or have employees, you can get a tax benefit for contributing to or offering a retirement plan, like a 401(k) or IRA.

If you are on your own, you are eligible to open a solo 401(k), also called a one-participant 401(k). Your contributions are tax-deductible up to a certain limit, but you’ll pay income tax on the contributions upon withdrawal in retirement.

If you have employees as well, it is good to note that business owners can also participate in the same traditional 401(k) offered to employees. Employee retirement plans can save your business on employer payroll taxes because they lower the amount of employee wages subject to the Federal Unemployment Tax Act (FUTA).

4.     Home Office Deduction

If you are working from home, you can qualify for another helpful deduction when you dedicate a portion of your home to your business. There are two ways to calculate your home office deduction. The simplest way is by multiplying the square footage used as your home office — not exceeding 300 square feet — by $5.

You can also calculate your home office deduction by multiplying your eligible home expenses by the portion of your home that is used for business. For example, if your home office is 400 square feet of a 4,000 square-foot home, you can deduct 10% of eligible expenses.

The most important thing to note here is that your home office cannot be multipurpose. If you don’t have a spare room to dedicate as your workspace, you can use a physical divider or even an imaginary wall to section off a portion of your guest bedroom or basement to qualify as a home office, as long as you keep the office area strictly for business.

5.     Deduct the Business Use of Your Vehicle

If you have a personal car– leased or owned — that is used for your business is tax-deductible, just like your home office. Again, there are multiple ways to calculate your deduction.

The simpler method of calculating you deduction amount is by multiplying the number of business miles driven by the IRS mileage rate, which fluctuates each year. In 2022 it’s $0.585. Otherwise, you can deduct your car expenses in proportion to miles driven for business. So, if you put 20,000 business miles and 10,000 personal miles on your car in a year, you can deduct two-thirds of eligible car expenses.

It is also important to note that your daily commute is not considered deductible. The IRS views the commute between home and work as a personal trip.

6.     Claim the Qualified Business Income (QBI) Deduction

The qualified business income (QBI) deduction reduces your eligible taxable income by 20%. It’s the ultimate self-employed tax deduction because you don’t have to do anything special to qualify. You just need a pass-through business.

The QBI reduces a business owner’s taxable income. To qualify for QBI deduction in 2022, a single filer must have less than $170,050 in taxable income, this increases for joint filers up to $340,100.

7.     Pay Your Estimated Quarterly Taxes

The IRS requires small business owners that predict they will owe more than $1,000 at the end of the financial year to make quarterly payments. Estimate your year-end tax bill and contribute to your year-end accounts by filing Form 1040 on these dates:

·       April 15

·       June 15

·       September 15

·       January 15

8.     Set Aside Funds for Payroll Taxes

As a small business owner that employs staff, you have a legal obligation to report, withhold, and pay employment taxes. There are various types of tax to consider:

·       Social security tax: Employers pay half (6.2%) of employee earnings up to maximum earnings of $147,000.

·       Medicare tax: Employers pay half (1.49%) of an employee earnings.

·       Federal income tax: Varies depending on salary, dependents, and personal deductions.

9.     Charitable Contributions 

Whether you’re donating cash to a local non-profit or supporting a cause in your community, small businesses can reduce their tax liability by making charitable contributions. C-Corporations can donate and write off up to 10% of its taxable income. This isn’t just a tax-saving tip—it’s a way to connect with your target customers.

10.  Hire an Accountant

There is a lot that goes into making sure your business is functioning properly, and most people who are starting their own small business don’t have the time to be an accountant as well. It can be helpful to hire a professional who can take over your finances and make sure you are able to focus on your small business without a worry. CKH Group is a great place to start! We are here to help you, and if you have any questions, please reach out at 770 495 9077 or info@ckhgroup.com and book a free consultation.

The above article only intends to provide general financial information and is based on open-source facts, it is not designed to provide specific advice or recommendations for any individual. It does not give personalized tax, financial, or other business and professional advice. Before taking any form of action, you should consult a financial professional who understands your particular situation. CKH Group will not be held liable for any harm/errors/claims arising from the articles. Whilst every effort has been taken to ensure the accuracy of the contents we will not be held accountable for any changes that are beyond our control.

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