How Can I Lower My Business Taxable Income?
Posted on October 7, 2022 by Oozle Media
Taxes are stressful for anyone, but especially for small business owners. You are already doing so much for your company, and the last thing on your mind is making sure the taxes get done. That’s why Lightheart, Sanders & Associates has come up with some tax-saving tips to make taxes easier on you this season. If you need ways to reduce your taxable income this year, consider some of the following ideas!
1. Start a Retirement Plan
There are several retirement plan options that you can choose to help with lowering your taxable income. A SEP Plan can reduce your taxable income up to $61,000(2022) for example. Some of these plans include Simplified Employee Pension Plan, IRA and 403(b).
2. Employ a Member of Your Family
The IRS allows you to employ family members that allow you to avoid typical payroll taxes. For example if you hire your children that are under 18 years old, the wages paid are not subject to Social Security and Medicare taxes. It is important to remember that these wages paid to family members need to come from justifiable business purposes.
3. Change Your Business Entity Type
Owners of Single Member LLC’s may report their business income and expenses on Form Schedule C on an individual 1040 tax return. When it is reported on a Schedule C, the net income from the business is subject to self-employment tax of 15.3%. This can result in a high tax liability. Fortunately, single member LLC’s can elect to be taxed as an S Corporation. While there are several items to consider, this can be a good way to reduce your tax liability.
4. Claim a Home Office
A home office has become more and more common with the rise of remote work. Employers who exclusively use a portion of their home for conducting business on a regular basis and use it as their principal place of business can take home office deductions. A taxpayer can choose between two options when claiming this deduction. The simplified option has a rate of $5 per square foot of the business use of the home up to $1,500. The regular method is based off a percentage of actual expenses.
5. Deduct Vehicle Expenses
You can deduct your mileage or actual expenses when you use your vehicle for business purposes. In order to claim this deduction, you will need to track your miles and the business use of the miles, regardless of the method you choose. It is important to know that you will need to be consistent in the method that you choose through the life of the vehicle. If you choose to use actual expenses in year one, then you will need to continue to use actual expenses for the continuation of the vehicle life. Likewise, if you choose the mileage reimbursement method (62.5 cents per mile for 2022), then you will need to continue to use that method throughout the time you have that vehicle.
Contact LSA for Help
Lightheart, Sanders and Associates is your go-to accounting firm for small business owners and the beauty and barber industries. With locations in Mississippi and South Carolina, we help business owners find more freedom to lead, grow, and live the way they planned. Our simple, customized strategies and tools help your business’ finances succeed. Contact us today to see how we can help you.
Categories: Tax Tips