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10 Tax Saving Tips For Startups: How to Plan Your Taxes and Save
If there's one thing that gives business owners a headache, it's taxes. If you hate doing your business taxes, mainly because you're a startup and may not afford an accountant, then it could easily be the bane of your existence. However, this is a mandatory topic that you must deal with.
Tax non-compliance costs a staggering $441 billion annually, and it leads to significant penalties that could drown your business, which means it's not an option. So why not find ways to make it easier? Even better, why not find some incredible tax saving tips to reduce those taxes?
Wait! Can you do that?
Yes!
This is precisely what we're going to be discussing in this post. We have gathered some of the best tax saving tips around, which will help you grow your startup without having to worry about the cumbersome burden that taxes can be.
1. Remember to Deduct Your Home Office
A lot of startup owners start their businesses from home, but most of them have no idea that they need to deduct all expenses related to their business. These expenses can include anything from insurance, repairs, mortgage interest rates, and things like internet services. The trick here is to determine what exactly goes into your business expenses, and what remains as personal expenses when you have a home office.
While you're at it, deduct your car expenses as well if you're using your personal car for business errands. It would help if you also determined what percentage of time you dedicate the vehicle for business purposes, then apply that to the overall auto expenses. Consider whether you want to use the IRS standard rate or the actual car expenses.
2. Get a Tax Filing Software
A tax filing software is hands down one of the best things you can have as a startup and one of the business tax saving tips. At this point, your budget may not allow you to hire a tax advisor, an accountant, or even a bookkeeper. This means that tax software will come in handy, and it works for even the savviest of entrepreneurs.
There are many excellent software programs out there, so you need to do some research and find the best one. Essentially, it'll help you prepare and file your tax returns online, and back up those filings with both maximum refund guarantee, and accuracy.
3. Keep All Your Receipts
One of the best tax saving tips on this list is to keep all your business receipts. Receipts are a financial dashboard of all the money you spend through the year, so it's imperative for you to keep tabs on them. Having digital receipts is a lot better in this day and age because you'll have better records and a minimal chance of losing them.
Most of these receipts are for goods and services that you can deduct on your taxes, which will offset taxable income. Find a digital receipts application that can sync with your tax-filing software, which will make things more seamless.
4. Hire Family Members
Since you're just starting out if you have family members that can help you run your business, regardless of the task, hire them. This is one of the best tax saving tips you can implement because you can add tax savings to the benefits.
This means that you'll have the ability to take business deductions for compensation paid out to them. This will lower your income tax, and you may be able to evade taxes like FUTA and FICA.
5. Pay Your Retirement Accounts
Small business owners and self-employed entrepreneurs have the most retirement planning options to choose from. Even when you fit in either of these categories, you still qualify for the traditional IRA retirement account like everyone else. You can combine this plan with others such as 401(K) and SEP IRA.
Contributing to these accounts will lower your tax bills, which will give you a great tax break. You can talk to a financial advisor and determine which retirement account would be most suitable for you.
6. Register Your Business as an LLC
Most startups consider themselves small businesses and the owners fail to realize the importance of choosing a business entity. One of the best tax saving tips for LLC companies is that you can evade self-employment taxes and get other tax benefits. Once you register your business and an LLC, you can go the extra mile and file an S Corporation, which will reduce the amount of taxes you have to pay.
7. Hire Independent Contractors
If possible, starting off with independent contractors instead of employees can save a lot on taxes. One of the best things about independent contractors is that they will only come to work based on your needs, and you don't have to keep them around when you don't need them. The next best thing is that you can keep them away from all the costs that come with employing full-time employees.
These costs include Medicare taxes, Social Security, company retirement plans, among other benefits like life, disability, and medical insurance or holiday benefits. Of course, you need to ensure you're legally liable to do this so check the legal standing of hiring contractors.
8. File Your Taxes on Time
If there's one vital tax saving tip you should implement, this is it. It's crucial for you to pay your taxes on time because you stand to pay late filing and payment penalties to the Internal Revenue Service. These penalties can be quite hefty, but they depend on the type of business entity you have.
For instance, an S Corporation can pay penalties based on the number of shareholders, while partnerships can be penalized based on the number of partners. Even when you can't afford to pay the taxes on time, at the very least, ensure you file on time, which will show good faith and reduce the penalties.
9. Donate Unused Inventory
If you have inventory and equipment you don't use, it's advisable to donate it instead of selling it. This way, you'll qualify for tax deductions. Any properties, equipment, cash, or supplies you donate are all considered deductible expenses.
10. Overpay Tax Estimates
If possible, overpaying tax estimates is one of the best tax saving tips. This may seem counterintuitive, but it's a great way to avoid tax fines and penalties. The thing is, most startup owners have been employees before, meaning they are used to W-2 forms.
This brings about the issue of forgetting that they need to remit quarterly taxes and don't budget for it. By the time they realize their mistake, they have already been hit with interest and penalties, and for some, it becomes a vicious cycle that eats away at their business.
The Best Tax Saving Tips for 2020 and Beyond
These are some of the most significant tax saving tips you can implement. Ensure you don't miss any qualified deductions and that you seamlessly track your expenses and income using the right apps and software programs.
As a business owner trying to grow their startup, please check out some of the most creative marketing strategies to boost your business.
