Here are seven ways for owners of small businesses to save
money on their taxes.
1. Incorporate Yourself: If you`re still a proprietor
or partner of a business, it`s time to incorporate yourself.
Not only will you limit your liability, but you may enjoy
lower tax rates on small business income and other tax
advantages as well.
2. Be Home Based: If possible, continue (or switch to)
being a home based business. Not only will you keep your
overhead down, but you will be able to write-off (or deduct)
the business use of your home.
3. Income Split: Pay reasonable wages to your spouse and
children. In this way, you can legally divert income taxed
at your higher rate to your family members that are in a
lower tax bracket.
4. Rearrange Your Affairs For Maximum Tax Savings: Can you
make some changes to turn your hobby into a moneymaking
business? Can you use that extra room in your house as a
home office for your business? Can you arrange to use your
car more for business purposes? Can you arrange for more of
your entertainment expenses to be business related?
5. Document Your Expenses Well: Do you document your
expenses well so that they would survive a tax audit?
Have you kept a mileage log so that you can prove the
percentage business use you claim for your vehicle?
Have you kept receipts for all your entertainment expenses
and listed the business purpose on the back of each receipt?
6. Be Punctual: File all returns and pay all taxes due
(income, payroll, sales, et cetera) on time. This
way, you avoid expensive late filing (and payment)
penalties and interest.
7. Develop a Tax Planning Mindset: Some people only worry
about their taxes during tax season. However, you will save
a fortune in taxes, legally, if you make tax planning your
year-round concern. Do you make business and personal
purchases, investments, and other expenditures with tax
savings in mind?
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