Our top ten tax tips aims to provide you with the right information to help you reduce your annual tax return bill in your 2024/25 Tax Return. In this tax saving article, we focus on Small Business Owners, you may also like our Tax Tips for Individual Filers.
Nobody really likes paying tax though most of us accept it is a necessary financial burden that ensures the stability of our Country and underpins our modern social and cultural existence. Taxes ensure that Local, State and Federal Governments sustain the services and lifestyle we strive for and sustain our public values.
Whether you do or don't like paying tax, the reality is that most of us feel we need the money in our own pockets more that the governing bodies do. Modern life is expensive and economic pressures have never really eased for working families since 2009. In this article, we look at legal ways for you to reduce your tax bill and keep more of those hard earned dollars in your own pocket.
IRA plans remain one of the most tax efficient solutions for reducing annual tax burdens as well as providing a good financial solution for you and your Spouse. Annual IRA contribution limits apply (see the Tax Form Calculator, use the advanced feature and alter your IRA contributions to illustrate how your tax return could be affected).
Despite changes to tax and healthcare systems over the past few years, you can still access tax reductions due from Health Insurance. The Shared Responsibility Provision mandates that you must have sufficient healthcare insurance in place for you and your family or qualify for a healthcare coverage exemption.
Tax Tip: Check the box that indicates you had health coverage for all or the 2023 Tax year.
Most of us are now familiar with online systems and tools, the fact you use the Tax Form Calculator to estimate your tax returns underlines how technology has changed the way we manage our tax and finances. Electronic filing is the easiest way to file your 2024 tax return, particularly when using direct deposit. If your tax return calculations how that you do owe the IRS money, you can pay the m directly from your Checking or Savings Account. This avoids any unnecessary late payment penalties as well as reducing stress. Worrying about tax bills can be very stressful, it's always better to face them head on and pay as soon as you can.
Completing and returning you tax return can be one of the most stressful times of the year for many small business owners. This is largely because people tend to wait until the last minute instead of preparing our taxes throughout the year. Reduce your stress by reviewing the following tax saving tips, tax deductions and other tax return tips.
A common mistake of small business owners is to commingle business and personal funds. It’s important to have a separate business checking account and credit card account for your business. This will make things a lot easier when it comes to managing your books and getting deductions organised for tax time. You need to make sure that you can produce documents that support legitimate business expenses as the IRS will request these if they decide to audit your business.
Preparation is key when it comes to your tax return. By simply introducing just a few things into your daily, weekly, or monthly routine you can remove the stress that tax season can bring on and also save money. Below are two examples:
Purchase a dozen expandable folders so that you have one for each month. Label each folder with one of the 12 months and file all receipts, deposit slips, ATM withdrawal slips, etc. into their respective folders.
If you set aside just a few hours each month to organise all of the paperwork in the folder, you won’t have to do 12 months at once. During this time, you want to reconcile your bank and credit card accounts by matching up your receipts with the statements received from your bank.
Accounting software can make preparing your tax return easier and can help you claim all your deductions. Once you have updated the program with all of your business revenue and expenses, you can quickly create financial statements in just a few minutes to send to your CPA or tax professional so they can file your tax return.
If you use your car for your business, you can deduct car expenses. You can choose one of the following methods to calculate your auto expense deduction:
For this method, you would multiply the total miles driven for business by the standard mileage rate for the year. For the 2018 tax year, the standard mileage rate is 54.5 cents per mile.
You can deduct actual car expenses like gas, repairs, and insurance. However, if you use the car for personal and business, you will need to calculate the percentage that the vehicle was used for business purposes first and then apply that percentage to the total car expenses.
For example, if you drove your car a total of 20,000 miles and based on your mileage tracker 8,000 of those miles were for business then you would divide 8000/20000 which equals 40%. Therefore, you can deduct 40% of your total car expenses as a business deduction.
You can deduct 50% of meals that are considered business-related. This includes taking a client, or a potential client, out to lunch. It could also include ordering food for the office as a treat for your employees. You must ensure that these meals are not lavish or extravagant.
A good rule of thumb is to treat your business finances as if they were your personal funds. Avoid being extravagant and claiming for things that you wouldn’t normally spend your own money on.
New business owners, if just starting out, cannot always afford to hire employees because they have to pay payroll taxes and provide other benefits, in addition to wages. By hiring an independent contractor, you do not have to pay benefits or payroll taxes.
However, make sure that you understand the difference between an employee and an independent contractor. If your independent contractor meets the legal definition of an employee, you could face penalties.
Be sure to have all contractors complete a W9 form. This will ensure that you have all of the necessary information to provide them with a 1099 tax form at the end of the year.
The section 179 deduction allows you to recover the full cost of equipment or property up to $1,000,000 for the 2018 tax year that you purchased for your business in the same year that you purchased it.
Setting up a retirement plan can provide several tax benefits for you, your business, and your employees. Below are just a few of the benefits:
How your business is structured can have a significant impact on the taxes that you pay. For example, LLCs are pass through entities which means that your profits will be taxed at your ordinary tax rate, while shareholders of a C corp are taxed at the corporate rate and then again when they report distributions on their tax returns, this is known as double taxation.
Filing electronically will enhance the facility to get your tax return received on time. By filing electronically, you will save the money that you would have spent to send your return via the postal service. Most tax software programs allow you to e-file your federal tax return for free.
When you e-file, you receive a confirmation number after the IRS has successfully received your tax return. This is a much better alternative than dropping your return in the mail and wondering when or if it will be received. If you are expecting a refund, chances are an electronic tax return will be processed much faster than one received via snail mail.
It’s really important to file your tax return on time. If you fail to file your tax return on time and pay any taxes that are owed (including interest), you will be subject to the following penalties:
If you manage to file your tax return on time but you do not have the money to pay your tax bill it’s still best practice to file the return. By filing the return, you can avoid the failure to file a tax return penalty. There are several penalties that may be eligible for relief. There is a way to appeal a penalty using an online tool.
If you do hire an accountant or tax professional to prepare your tax return, have them go over the return with you. Make sure that you understand and agree with the information they are reporting and take responsibility for the income and deductions you claim. Your signature at the bottom return means that you agreed with what is being reported about your business. At the end of the day, the IRS will hold you, not your tax preparer, responsible.
To help you stay on top of changes to the tax code that could save your money, the IRS has a video portal that is dedicated to small businesses. This library includes over a dozen videos, including topics such as: