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tax reduction strategy, small business tax savings tips
Tips
to get the most tax reduction as possible – Advice to help
tax planning as early as a year ahead!
1.
Contribute to a Retirement Plan
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One of the best tax savings available is to contribute to some
form of retirement plan.
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This is because retirement plans such as 401(k) are not subjected
to federal and in some cases, state income taxes.
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This tip can help you make savings of between 20-40% in taxes.
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If you are already contributing to a plan, try to increase your
contributions in the early part of the year.
- This
tip will increase your tax savings and earnings over time.
2.
Contribute to a Flexible Savings account
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Another tip to reducing taxes is to contribute to a flexible savings
account provided by your employer.
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When you do that, a fixed amount will be deducted from your pay
before the taxes are calculated and placed in a special account.
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That amount of tax free money will be used to cover your medical
expenses not covered by insurance.
3.
Take Advantage of Tax Rates
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If you have assets or investments to sell, try to hold on for
as long as you need to take advantage of the long term capital
gain rates.
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Due to the new rates for assets held for at least one year, you
can save as much as 10% on taxes.
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Check the dates properly because if you miss out by even 1 day
you will be forced to pay ordinary income tax rates on any gain
on the sale.
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However this strategy does not work on all assets so check with
the IRS if your investment qualifies for the lower capital gain
rate.
4.
Reassessing your Business
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If you’ve had your business for a while it may be time to
change your business structure.
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For example: If you are an S corporation that’s doing quite
well, you might consider changing to a C Corporation to take advantages
of the fringe benefits that C corporations receive.
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If you are self employed, you may want to incorporate or form
a limited liability company to obtain personal liability protection.
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Try consulting a tax professional to determine the most appropriate
structure for your business.
5.
Reviewing Compensation Arrangements
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Compensation sometimes takes up a sizable portion of your business
budget. Instead of letting this be, take steps to minimize taxes
on the compensation.
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If you reimburse employees for travel and entertainment expenses,
do so using an ‘accountable plan’.
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This arrangement requires employees to account for their expenses
and to return any excess reimbursement within a reasonable time.
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By using this plan, reimbursements are not treated as employee
wages and this are not subject to employment taxes.
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