20 Legal Tax Saving Strategies for Business

Tax Planning : Tactics that are legal and above board to limit your taxes with planning, write-offs, credits and proper recordkeeping

Owning a business means juggling growth, operations, and the taxes you’ll inevitably have to pay. While taxes are an unaffordable part of doing business, there are dozens of legal strategies to save you more money on your business’ taxes while staying in compliance with the law. Here are 20 of them that small and medium-sized business owners can implement to lower tax liability, while doing so keeping the books honest.

Understand Eligible Deductions

Begin by identifying typical and necessary business expenses that you can write off. With good documentation, office supplies, utilities, business travel and professional fees are often deductible.

Maximize Depreciation Deductions

Spread the cost of equipment and some property with depreciation rules Use accelerated depreciation methods, if appropriate, to lower taxable income in the early years of an asset’s life.

Utilize Section-Like Expensing Options

Instead of depreciating assets over time, you may be able to apply certain expensing provisions that would allow you to deduct the entire cost of the asset in the year it is placed into service. It can also help with significant current tax relief.

Leverage Tax Credits

Look into available credits, like those for hirings, research and development or investments in energy-efficient equipment. Credits lower tax you owe and can be worth more than deductions.

Time Income and Expenses

When possible, push income to the next year or pull expenses forward into this year to adjust which tax year they impact. Taking the appropriate steps at the right time can reduce the tax bill for this year or maximize tax brackets over multiple years.

Use Retirement Plans Strategically

Set up retirement plans for owners and employees. Contributions to tax-deferred retirement accounts can reduce your income today while also contributing to savings for the long run.

Optimize Entity Structure

Select the right business entity to achieve your tax objectives. Different types of entities have different tax treatments; an occasional review of your entity choice can reveal opportunities for savings.

Employ Family Members Legally

When done legally, hiring family members allows to shift income into lower tax brackets. Make sure the actual work done is real, documented and paid within market rates.

Maintain Detailed Records

Good recordkeeping backs up deductions and credits. Keep your receipts, invoices, mileage logs and payroll records straight to back up claims if you are reviewed.

Separate Personal and Business Finances

Keep personal and business expenses separate. Using separate accounts and cards lowers audit risk and makes bookkeeping and preparing taxes easier.

Take Home Office Deductions Where Appropriate

If you use a portion of your home solely for business, you might be eligible to claim a home office deduction. Adhere closely to guidelines and document how the space is utilized.

Get it Right: Deduct Business Travel and Meal You Have to be Smart

Document business purpose, people there, costs for travel and meal expenditures Familiarize Yourself With Limitations and Documentation Requirements to Keep These Deductions Once Valid

Make Use of Net Operating Losses (NOLs)

If your business has a loss in any given year NOL rules may permit you to carry losses backward or forward to offset taxable income in other time periods, reducing overall tax across time.

Use Accountable Plans for Reimbursements

Under an accountable reimbursement plan, employers can reimburse employees for business expenses without the payments being treated as taxable income, as long as the plan meets documentation requirements.

Monitor Inventory Valuation Methods

Select a method of inventory accounting (FIFO, LIFO or average cost) that accurately reflects your business and can have an impact on taxable income. Just stay consistent and document it properly.

Split Income with Multiple Owners

Income, profits, and losses can be allocated among the owners in a manner that minimizes total tax liability to the extent possible while still reflecting economic reality when the tax situation varies for multiple owners.

Upgrade to Energy Efficiency and Improve Capital

Investments associated with energy and some other capital improvements may also be eligible for tax credits or increased deductions reduce the effective cost and tax payable.

Examine the Tax Incentives of States and Localities

Local governments sometimes provide inducements for job creation, investment or relocation. You should look up research programs related to your business activities and apply there if you are eligible.

Keep Up with Tax Law Changes

Tax rules evolve. Stay updated or consult with a tax professional regularly to ensure you’re using the latest provisions to legally minimize your tax bill.

Build a Year-Round Tax Plan

Last-minute moves rarely yield any tax savings. Create a tax strategy that is implemented on an ongoing basis, with repeatable forecasting, transaction completion and reviews to maximize outcome.

How to Implement These Strategies

Begin with a detailed review of your overall tax situation: Income trends, expenses (including business-related purchases), assets and growth plans. General exercises — Make sure you have a checklist of deductions and credits available, also implement reliable bookkeeping systems. Create a little internal calendar for tax-sensitive decisions, such as purchases of assets or changes in compensation. If you’re not sure, consult a competent tax adviser familiar with business tax law and compliance.

Pitfalls to Avoid

Steer clear of aggressive positions that offer big, short-term savings but have significant legal risk. Unsupported deductions, the wrong timing of income and misclassification of workers can all lead to audits, penalties and interest. Document the business purpose for tax decisions, and keep contemporaneous records.

Conclusion

The legal way to save money on business taxes is all about planning — and doing so with foresight. Through meticulous recordkeeping, attention to timing, the savvy use of deductions and credits and periodic reviews of entity structure and operations, you can keep your taxes under control without running afoul of the law. Use these 20 strategies to the bone, exempting you and your business finances from a potentially crippling situation with more funds available for reinvesting back into the business.