How to Reduce Tax Costs for Your Small Business

Written by Bryce Allen
Business PlanningTaxation
Group of happy business people working as a team at the office on meeting

Taxes can be a heavy burden on small businesses. The good news is that there are several strategies you can use to reduce your tax costs and maximize the amount of money you have available for investments in your business.

Being a small business owner is a challenging yet rewarding experience. But one of the most difficult aspects of starting and running a small business is managing your tax costs. Managing taxes can be daunting, but there are ways to reduce your tax costs while still staying compliant with applicable laws. Let’s dive into some strategies that can help you reduce your tax costs.

Get organized!

The first step in reducing your tax costs is organizing all of your financial records and documents for easy access when it’s time to file taxes. This includes maintaining organized records for income, expenses, deductions, and credits. Keeping track of each transaction throughout the year helps you stay compliant with local and federal regulations regarding taxation, as well as maintain an accurate record of how much taxes you owe or are owed for any given year. Having all necessary documents in order will also make filing taxes more efficient and less stressful come tax season.

Claim business expenses

Another way to reduce your taxes as a small business owner is by claiming all relevant business expenses on your taxes. Common deductions include meals, travel expenses, supplies, equipment and software purchases, rent payments, utilities, and more. It’s important to track these expenses throughout the year so that you don’t miss out on any potential deductions when it comes time to file your taxes. Additionally, be sure to keep detailed records of all of your business expenses in case the IRS ever needs proof that an expense was related directly to running your business.

Take advantage of tax credits & deductions

Tax credits and deductions are two tools that can help reduce the amount of money you owe in taxes each year. Tax credits are applied directly to the amount of total taxes owed, while deductions lower the amount of taxable income at the end of the year. Many small businesses qualify for multiple credits and deductions, such as those related to healthcare coverage or hiring employees who are veterans or members of certain groups such as minorities or disabled individuals. Knowing what credits and deductions apply to your business can help you reduce your overall tax burden significantly each year.

The federal government offers tax credits and deductions specifically designed to help small businesses save money. For example, the Work Opportunity Tax Credit (WOTC) provides businesses with a credit of up to $9,600 per eligible employee who meets certain criteria. Additionally, the Research & Development (R&D) Tax Credit allows businesses to deduct up to 20 percent of their research-related expenses from their taxable income. Taking advantage of these tax credits and deductions can significantly reduce your tax burden.

Hire a professional accountant

If you’re feeling overwhelmed by understanding all the rules associated with filing taxes as a small business owner—hiring a professional accountant is an excellent way to ensure compliance with applicable laws while minimizing your overall tax burden each year. An experienced accountant knows how to maximize deductions and use other strategies to minimize the amount owed in taxes based on your current financial situation and goals for growth over time. Plus, having an accountant handle your finances leaves more time for growing your business, which makes it well worth the investment in their services alone!

It may seem counterintuitive but hiring employees or contractors can actually help reduce your tax costs in the long run. Employers are able to take advantage of certain tax benefits such as payroll tax deductions and employee benefit plans like health insurance and retirement savings accounts which can lower their overall taxable income. Additionally, having extra staff around can help take some of the burden off yourself so that you can focus more on growing your business rather than doing everything on your own.

Managing tax costs is one aspect that all small business owners must consider when launching their startup or expanding their operations over time. However, there are many different ways that small business owners can utilize existing resources or hire professionals to streamline processes related to filing taxes and maximize savings along the way.

As tax season approaches, it’s time to consider a unique partnership approach and relationship-based consulting model: Rooled. Our strategies ensure that you are well taken care of tax season year after year – we go beyond traditional tax preparation services to build long-term relationships with insight and value.

By taking the time to get to know your business, we create practical tax and financial solutions tailored to your unique needs while keeping you informed throughout the entire process. At Rooled, our goal is to work with you year in and year out so that tax season no longer brings anxious anticipation but an assurance of success.

About the Author

Bryce Allen

Bryce Allen is the Director of Tax at Rooled, Inc., in his 16th year of public accounting firm experience. He earned his Bachelor of Science in Accounting at San Jose State University. R&D tax credit guidance is a key area of Bryce's expertise.