Gas prices and inflation are high and supply chain issues are driving the prices up for businesses everywhere. That means small businesses in particular are looking for ways to cut costs. And that means now is a perfect time to employ some proven strategies to lower your business taxes.
Leveraging ‘Expense’ vs. ‘Depreciate’
There are many cases where you may be allowed to choose to claim business expenses as either expense (deductions) or depreciation. Your business taxes should reflect your business in its entirety, and that might mean spending some more time on those taxes or talking at length with your accounting department, CPA, or other tax services provider.
When you are considering whether to expense or depreciate the assets or equipment you just bought, there are several things to think about. This mostly applies to larger purchases. For example, if you bought some used office equipment for your business and it cost you $200-300, depreciating that over a few years isn’t going to help much.
But if you just spent thousands of dollars on a company vehicle, or you purchased new machinery or equipment because you are experiencing (and expect to continue experiencing) substantial growth, depreciating those assets over a few years rather than giving yourself one big year of deductions could actually be more beneficial, especially if the growth means you’ll end up moving into a higher tax bracket.
Expanding Employee Benefits
It may seem counterintuitive that expanding the employee benefits your business offers could result in a lower tax bill, but there are several reasons why this is possible. Keep in mind that every business’s setup is different, so it’s important to weigh the costs and viability of adding benefits to your employee’s current contract or incentives package.
There are some tax laws that have taken reimbursement incentives away from individuals, but they can still be claimed on business taxes. By transferring that reimbursement to your business, you get to take the tax break and keep your employees happy because they aren’t losing benefits when the tax code is changed or updated.
It’s also worthwhile to evaluate your current benefits and see if they could be optimized or updated to reap more business tax benefits. If you are already offering your employees retirement or healthcare benefits, a quick audit of these programs could result in a lower tax bill next year.
Also, expanding benefits is proven to increase employee attraction and retention. And the costs of hiring and training new individuals are expensive across the board.
Play It Smart with Deductions
Deductions are often the most sought-after tax benefits. Businesses spend their capital to pay for something that can be written off their taxes. But being able to qualify for those deductions can also be costly and time-consuming.
For example, a $1,000 deduction for businesses that fall into the 25% tax bracket only increases your refund by $250.
If someone asked you to give them $1,000 and they’d trade you $250 back, you wouldn’t agree to that. Take some time to weigh the costs and benefits of taking certain deductions and make sure you factor the end results (like the impact on your tax refund total) into those calculations.
Pay Your Estimated Tax Payments on Time
There are fees and penalties for your business if you miss your quarterly estimated tax payments. It may seem easier to leave the payments until after you’ve had your taxes done for the year, but it could also be costing your business more money than it needs to be.
If you’re not sure how to calculate your estimated taxes or when they are due, you can reach out to a trusted tax professional or browse the IRS’s website, which is full if helpful tips and tricks for fulfilling your estimated tax obligations.
Don’t Miss the R&D Tax Credit
R&D often conjures images of Tony stark’s lab or Bruce Wayne’s enterprise, but it is much more than that, and tons of small businesses are missing out on a lower tax bill because of a false idea. Only about 20% of those businesses that are eligible for the R&D tax credit are actually taking advantage of it.
R&D isn’t just creating life-changing technology for a new purpose. If you spent hours trying to figure out how to reduce waste in your packaging processes, that’s R&D. If you worked through several iterations of a handmade soap recipe or spent time tweaking your products so they can be multi-purpose tools or accessories, that’s also R&D.
Taking some time to educate yourself or ask your tax professional about the R&D tax credits could create a great avenue for lowering business taxes.
Lower Your Tax Prep Costs with eFile360
There are tons of great all-encompassing tax software options, but what if you are just looking for a little help with your taxes without making a huge commitment of your business’s time or money? You partner with eFile360, of course!
With us, you can file your 1099, 1098, W-2, and Affordable Care Act forms in three quick steps. We have options for you whether you are manually inputting your data or uploading bulk data, and we have other related services that can help ensure your next tax season is as painless as possible: e-filing, printing and mailing forms to recipients, TIN checking, and e-delivery.
To help keep your business tax forms on track this year, sign up for a free eFile360 account today.