Five Tax Secrets All Small Businesses Should Know

The following information probably will not save you any money on this year’s taxes, but in the years to come, your small business will be able to save quite a bit of money and headaches. These are tax loopholes specifically beneficial to small businesses. They can all be used at once too. Begin using them right away, so next year you can see the sizable savings. Here are five incredible tax loopholes designed to for small businesses.

Elect Subchapter S Status

If your small business is profitable and earning you a decent salary, the best tax loophole for you is the Subchapter S election. Often, accountants will try and steer their clients away from the loophole, and doing that is an error. The loophole lets a LLC or corporation to split the profits two ways. One part is not subject to employment taxes and the other parts is. It allows you to avoid paying the self-employment tax, Social Security tax and Medicare tax.

Custom-Tailored Pension Plan

A 401(k) and a tax-deductible IRA are wonderful apparatuses to save on tax money. After you put your money into one of these type of accounts and follow the rules, you are permitted to deduct your contributions from taxable incomes. Fortunately, there are more plans out there with better features than run-of-the-mill IRAs and a 401(k). For example, a pension plan combined with a Subchapter S election offers far more than the other two stale options. Read more about it here in this more in-depth article.

Avoiding or Sever State Tax Nexus

If you think a state is particularly hard on you and taking too much then you are probably right. Fortunately, you can legally avoid the state nexus or sever it altogether. Consulting a tax specialist or accountant for this procedure is recommended. States look at everything your business has, such as property, sales, and payroll to see what you owe, and take it from you. In a nutshell, you can avoid this by not technically having property, employees or contractors in the state, and you avoid having sales inside of said state by using the loophole for multistate apportionment your tax accountants will help you set up.

Family Income Splitting

If a small business owner employs family and pays them generously, it causes causes a classification shift. After exhausting all manner of deductions, the taxpayer who is low on deduction options and out of tax credits gets a shift, and he or she becomes a low to medium-marginal-rate taxpayer able to file deductions and get tax credits again.

Automated Business Processes

Automated businesses processes are an easy way to save taxes. It eliminates the need for staff and the less staff you have, the less tax issues you deal with at the end of the year. Products like ADP can be a good start in automating a lot of your work.

These five tax secrets will certainly help you as a small business owner. Until recently, small businesses were paying a heavy price trying to compete with large corporations and deal with a tax burden for increasing use of social programs with no end in sight of people arriving and taking advantage of tax-funded programs. Take advantage of these tax secrets to save yourself money, especially if you do not like where your tax dollars are headed.

Eileen O’Shanassy

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