What Your Small Business Can Do to Keep Taxes Low This Spring

Taxes are complicated enough for an individual. Adding in the additional complication of owning a small business can cause stress, anxiety, and concern over whether you’re fulfilling all of your tax obligations.

Additionally, a large tax bill can take a toll on the razor-thin profit margins that small business owners often contend with. Your small business may be missing out on huge deductions if you’re not handling your business operations in a tax efficient manner.

With Tax Day rapidly approaching, here are 5 considerations you can keep in mind for the next tax year.

1. Consider restructuring your employee reimbursement plans.

Accountable plans are reimbursement structures that have been approved by the IRS. If you pay your employees for work-related travel and expenses, you can claim these payment as non-employee income while still deducting them from your taxes. This means that you’ll save on employment taxes and lower your overall taxable income.

As of 2017, employees are no longer allowed to deduct miscellaneous unreimbursed expenses, so establishing accountable plans is a positive for your business and for your employees.

2. Deduct Machinery and Equipment From Your Taxes

Along with the aforementioned tax law change, another big code amendment increased the amount of money you can deduct for machinery and equipment from $500,000 in 2017 to $1 million in 2018. Small business owners can strategically spread this deduction out across several years, helping to offset the rate of depreciation and start-up costs.

This works as your tax bracket increases. Those in the 12% bracket now may be in the 22% bracket in the future. In that situation, a $10,000 deduction for machinery would save you $1,200 in taxes this year, but $2,200 in the future.

3. consider your options about carryovers

Sometimes referred to as carryforwards, these allow you to apply an unused portion of a tax deduction to carry over into a future year’s tax return. When you decide to use a carryover option, keep track of that information so that you won’t forget to apply the deduction. Your accountant should automatically keep track of (and apply in the future) the following types of carryovers:

  • Capital losses
  • Business credits
  • Home office deduction
  • Operating losses up to 80% of taxable income
  • Charitable contributions

4. Offer Employees Fringe Benefit Plans

You can reduce taxable income by offering employee fringe benefit plans that are not subject to taxation. Those types of benefits will allow you to offer your employees, amongst many other benefits:

  • Health insurance
  • Adoption assistance
  • Employee stock options
  • Group term life insurance
  • Health savings accounts

While it seems like a lofty undertaking, understanding the parts of the tax code that affect your small business can save you a lot of money. Taking the time to discuss your options with your accountant or research deductions yourself pays dividends.