How To Reduce Your Small Business Taxes

Small business taxes can take a bite out of a company’s earnings. Taxes that a business pays are subject to local and federal laws. Tax Policy Center notes that states rely more on taxes to fund expenditure than the federal government does. Regardless of where your business is incorporated in the country, a few standard tax rules apply across the board. Luckily, there are several ways business owners can use these tax rules to reduce their overall burden. Using these doesn’t count as tax evasion but rather as a clever way for a business to shave some collars off their state tax payments.

Work Around Reimbursements

If your business has an employee that incurs expenses out of their pocket, there may be a way to reimburse them without having that money count as income. Investopedia informs us that this type of arrangement is known as an accountable plan. The employees aren’t the only ones saving on taxes, however. Reimbursements from an accountable plan don’t count towards payroll taxes, saving the business money as well. Employees may still need to submit certain accounting documents within the business and as proof of reimbursements from the company’s accountable plan.

Contribute to an Employee Retirement Plan

if the business starts making a lot of extra money, it can set up a qualified retirement plan to shelter some of that income from taxation. A qualified retirement plan has the benefit of being a tax deduction. Earnings put into the retirement fund don’t get taxed until withdrawal, protecting the payment’s lump sum. Additionally, if you start contributing to an employee retirement plan, you stand to gain a lot of loyalty from your employees for helping them.

Defer Income and Increase Deduction Rate

As the end of a year looms, businesses can defer income until the following year. This postponement has the benefit of allowing companies to defer the taxes on that income for an entire year. While it usually means employees may be paid a few days late into the new year, the benefits to the business are undeniable. Additionally, since bill payments count towards deductions, a company can reduce its deductions by paying more of its expenses before the start of the new year.

Use Employee Benefits as Incentives

When you raise employee wages, you inadvertently cause them to be taxed at a higher rate. To save both you and your employees some money, consider increasing your contributions to your employee’s life or health insurance plan. Employees who have to pay less in taxes mean that they get a more considerable take-home income and benefit from a much more substantial insurance cushion if things go wrong.

Proper Business Structure Also Counts

Depending on where you incorporate your company and how you structure it, you might be able to avoid business taxes altogether. Some states are very optimistic about businesses moving to their locales and have little to no corporate taxes. Aside from the obvious benefit of a more significant bottom line, these locations tend to be some of the most in-demand places to incorporate a business. Together, all of these methods can help reduce a business’s tax burden and give them more returns at the end of the day.

Brett Sartorial

Brett is a business journalist with a focus on corporate strategy and leadership. With over 15 years of experience covering the corporate world, Brett has a reputation for being a knowledgeable, analytical and insightful journalist. He has a deep understanding of the business strategies and leadership principles that drive the world's most successful companies, and is able to explain them in a clear and compelling way. Throughout his career, Brett has interviewed some of the most influential business leaders and has covered major business events such as the World Economic Forum and the Davos. He is also a regular contributor to leading business publications and has won several awards for his work.