Here we go seven ways for owners of small companies to save money on their taxes.
1. Incorporate Yourself: If you are still a proprietor or partner of a business, it is time to incorporate the business. Not only will you limit your liability, but you may enjoy lower tax rates on small business income and other tax benefits as well.
2. Be Home Based: If possible, continue (or switch to) being a home based business. Not only will you keep your overhead down, but you will be able to write-off (or deduct) the business use of your home and the associated expenses..
3. Income Split: Pay sensible wages to your spouse and children. In this way, you can legally divert income taxed at your higher rate to your family members that are in a lower tax bracket.
4. Rearrange Your Affairs For Maximum Tax Savings: Can you make some changes to turn your hobby into a moneymaking business? Can you use that extra room in your house as a home office for your business? Can you arrange to use your car more for business purposes? Can you arrange for more of your entertainment expenses to be business related?
5. Document Your Expenses Well: Do you document your expenses well so that they would survive a tax audit? Have you kept a mileage log so that you can establish the percentage business use you claim for your vehicle? Have you kept receipts for all your entertainment expenses and listed the business purpose on the back of each receipt?
6. Be Punctual: File all tax returns and pay all taxes due (income, payroll, sales, et cetera) on time. This way, you avoid expensive late filing (and payment) penalties and interest. You also avoid alerting the tax authorities.
7. Develop a Tax Planning Mindset: Some individuals only worry about their taxes during tax season. However, you will save a fortune in taxes, legally, if you make tax planning your year-round concern. Do you make business and personal purchases, investments, and other expenditures with tax savings in mind?
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