We have previously written on 4 Ways to Save Money on Business Rent. In that fashion, we we would like to continue that by showing you these easy 4 ways to save money on small business taxes.
1. Claim the Business Income Deduction
In many cases, it may be advantageous to report business income on your personal tax return. This allows you to be eligible to claim the qualified business income deduction. This is also known as the Section 199A deduction, a deduction for corporations who have qualified business income (QBI) from a domestic business. Eligible types of businesses include:
- S corporations.
- Sole proprietorships.
- Limited liability companies, aka LLCs.
- Partnerships of two or more people.
2. Retire the Business Way
You may already know all about Individual Retirement Accounts and how they currently have a $6,500 maximum deduction for individuals. This is up from $6,000 for 2022. Those aged 50 and over can contribute up to $7,500 for 2023, which is up from $6,500 for 2022. However, as a business owner, there are advantages. For example, those of you who do not have employees should consider a single-participant 401(k) plan. These plans have maximum contributions anywhere from $22,500 to 100% of your compensation, aka earned income. Read more on The IRS Site.
Did you know that 8 out of 10 small businesses have only one owner and no employees in 2023? – Source: Forbes
3. Claim Depreciation
Your business most likely owns equipment from heavy machinery to delicate technology. Three main paths are available for claiming depreciation:
- Section 179 – You may take a large deduction in your first year of owning the asset of up $1.16 million for 2023.
- Bonus depreciation – Different from the above, you can deduct a larger percentage of the purchase price of your equipment of up to 80% of the cost.
- Modified Accelerated Cost Recovery System – The MACRS depreciation allows you to take large deductions early in the life of the asset and smaller deductions down the line.
Consult with your accountant or bookkeeper to determine which avenue is best for your small business.
Did you know that the United States was home to over 33 million small business in 2023? Source: Nerd Wallet
4. Deduct All Eligible Financing Costs
You may deduct most of the financing costs you pay for your small business. This includes fees and interest on loans, credit cards, and other related expenses. You must meet certain criteria on finance expenses on loans for major assets. Additionally, some loans are specifically designated with non-deductible interest.
More Ways to Save Money on Small Business Taxes
Unfortunately, small business taxes are must for each and every year. However, a bookkeeper can assist by helping you navigate all these tips and many others. They may even be able to help you find other ways to reduce your tax burden. Feel free to contact us if you live in Houston or the surrounding areas and want help reducing your taxes.