Managing business tax liability is a great way to save yourself some money (or even procure a refund) at the end of the calendar year. There are several lucrative (and legal) ways to do that. Here are some great tips for reducing your 2022 business tax liability.
How the Super-Rich Reduce Their Business Tax Liability – & How You Can, Too
Often, small and medium-sized business owners think they will have to bear the brunt of their business success or failures come tax time, but it’s worth looking into what the super-rich are doing to save some money.
One of the most common ways to reduce that tax bill is to have a giving heart. If you want to reduce your business tax liability, there are so many charitable ways to do so. You can sponsor community events, pledge money for certain causes that are dear to you or pair well with your business’s mission, vision, and values, and donate supplies to local homeless shelters, food banks, and charity drives.
You can also participate in charity days, where a percentage of your sales for one day, one product, or one month all goes to a cause of your choice. There are several small businesses that partner with other area businesses or charities and create a product or service in which all the proceeds from those sales go right back into the community or charity.
Another way to reduce business tax liability is to invest in stocks – the taxes are lower on these investments than they are on wages, the losses can actually help you lower your tax bill, and any gains can circumvent capital gains tax if you just wait a bit to pull the profits out of the market.
Bundle Your Expenses
There are several ways to use a bundle approach that can help you use your expenses to reduce your business tax liability.
The first, and biggest, tip we can offer is to wait until the end of the year to make major business-related purchases. This includes purchases that make sense for your business – buying a brand-new piece of equipment when you already have a 2- or 3-year-old model that doesn’t need to be replaced for another decade or so isn’t a sound business decision and your costs will outweigh the tax benefits there. But if you are planning on making bulk or high-dollar purchases in the next several months, consider planning for an end-of-the-year purchase to maximize your tax incentives.
Employee bonuses are often given at the end of the year for tax purposes. Yes, having that extra money around the holidays will be appreciated, but you can also create some momentum for reducing your tax liability by doing bonuses at year-end.
Bulk purchases and prepaying expenses at the end of the year can also give your tax refund a nice boost if you do them in the last months of the year. For example, if you have a monthly expense of, say $8,000 for materials (and those materials aren’t perishable), consider making a big $24,000 purchase at the end of the year. You’ll still have what you need, and you’ll be starting the year off right with more than enough materials and a lowered business tax liability.
Mix Business & Pleasure
Travel expenses are a great opportunity for business tax liability reduction, and a quick and easy way to take advantage is to combine your work and vacation trips.
You can reduce vacation costs by deducting the percent of the expenses spent for business purposes. You can include things like airfare, part of your hotel bill, food, and other expenses that are related to your work time.
Remember: this doesn’t apply to every expense, and we’d recommend you talk to a tax professional to ensure you are using this write-off correctly.
Deduct Gifts Given to Customers & Vendors
If you purchase gifts for any customers or vendors that you work with as a token of your appreciation, you can deduct up to $25 per person. These do have to be true gifts – promotional materials and other business-facing initiatives or marketing campaigns are likely not going to qualify here. But, as always, ask your trusted tax professional whether you qualify.
Explore Tax Credits
There are so many diverse and impactful tax credits you and your business may be able to take advantage of, based on federal tax codes. The U.S. government wants to encourage businesses to create progressive initiatives that help communities, the environment, and -ultimately – the economy.
You can get tax credits to reduce your business tax liability for many things, including installing environmentally friendly materials and processes, investing in renewable energy, improving or implementing features in your business locations that cater to the disabled community, providing health insurance to your employees, and so much more.
If your business is trying to create positive change for your community or the environment, those efforts can almost certainly be used to find an applicable tax credit.
Professional Dues & Subscriptions
Do you or your business subscribe to trade magazines, professional clubs, or associations, or pay for other industry-specific subscriptions? Those are tax deductible!
Trade journals and magazine subscriptions as well as classes and dues you pay for to earn or maintain licensure or certifications for your field – if these resources and connections are more professional than social, they are eligible for a tax deduction, and you could be missing out on some great opportunities here.
Look into Your State and Local Tax Breaks
State and local taxes are other great resources for reducing your business tax liability. There are often incentives and tax credits available depending on where your business is located, the industry it’s in, and other related factors that can increase or decrease your business taxes.
Certain land and locations have historical or natural resources, and this value can often be reflected come tax time. Talk to your local tax professionals for these insights.
Your Information Returns Have Several Spots for Reducing Tax Liability
The tax code is complex and often our biggest mistakes, as businesses or individuals, stem from our lack of knowledge. Your 1098, 1099, ACA, and W-2 forms can all be used to optimize your tax return or to reduce your tax liability for the year.
Sign up for a free eFile360 account today to start working through your business tax liability reduction opportunities.