Taxes often add a significant cost for many businesses. A clear plan and smart approach to tax filing can help lower these costs. To be clear, this practice is legal and called tax avoidance, which is quite different from tax evasion. Here are a few tips you can use to reduce your business taxes.
Choosing the proper business structure
What type of business you register affects how you are taxed. Forming a Limited Liability Company (LLC) may offer more flexibility in your tax options and help you avoid double taxation. An S corporation can provide tax advantages by allowing income and deductions to pass through to shareholders, helping you avoid corporate tax.
Leveraging tax credits and incentives
The state offers several business tax credits that you can take advantage of. These include a research and development tax credit, an investment tax credit, a small business energy exemption, sales tax exemptions, brownfields tax credits and more. You can significantly reduce your business taxes by taking advantage of these programs.
Maximizing deductions and timing income and expenses
Aside from common business expenses like rent, office supplies, utilities and wages, you can use other least-known deductions, like Section 179. You can also defer income for the next tax year or advance expenses into the current year to maximize your tax deductibles. In addition, contributions by employers to employees’ retirement plans are also tax-deductible, providing further savings.
These strategies require careful consideration of your business’s financial situation and future projections and may need professional guidance.
