For many small to mid-size business owners, tax time offers its own set of special challenges. You want to pay your fair share of taxes, but you'd like to hold onto every last dollar that you can under the law.
Unless you're an expert on the tax code or can afford to hire a high-price tax attorney or accountant, you should do a little research to keep from paying Uncle Sam more than is necessary.
Just as it's important to keep close tabs on every dollar you spend to operate your business, it's equally important to make sure you don't throw away your hard-earned money by overpaying on your income taxes.
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Here are a few suggestions that may help you to trim your business's tax bill while still staying on the right side of the law:
Consider filing as S Corp
Small businesses have the option of filing as a C Corp or an S Corp. This decision in no way affects the makeup of your business and only governs the way in which you file your taxes.
As an S Corp, your business is taxed as a sole proprietorship or partnership, and you can pass through your company's profits or losses on the personal income tax returns of its shareholders, which may very well be you alone if you are the business's sole shareholder.
Filing as an S Corp allows your business to retain all the privileges -- and responsibilities -- of a C Corp while saving time and money by going the S Corp route. The big advantage of an S Corp filing is avoiding double taxation, according to an article in "Entrepreneur" by Nellie Akalp. If you are a shareholder in a business that files as a C Corp, the government levies taxes on the company's profits, as reported on the company's tax return. If the company then distributes a portion of its profits to shareholders, the government gets a second whack at those funds when you report them on your personal tax return.
If you opt to file your business's taxes as an S Corp, each shareholder (if more than one) reports his percentage share of the business's profits or losses on his personal tax return. There is no requirement for a separate filing of the business's income as a separate and distinct entity.
Stay abreast of tax law changes
Every New Year brings a number of changes in the tax laws that affect small business, as well as individuals and large corporations.
Some of these changes may give taxpayers a break, while others close loopholes and result in a higher tax bill. No matter how they affect the bottom line, it's your responsibility as a small business owner to stay on top of these changes.
One such change that goes into effect with your business's tax returns for 2013 is a significantly simplified option for claiming the home office deduction, which previously required complex computations daunting enough to discourage taxpayers from claiming the deduction at all.
Effective with your 2013 return, you can calculate your home office deduction by multiplying the total square footage of your office by $5. If you have set aside home office space totaling 120 square feet, you can deduct $600. The maximum annual deduction allowable under this formula is $1,500.
To ensure that your business is paying no more than its fair share of taxes, it's critical that you don't let any tax deductions slip by.
Here are just a few of the tax deductions that many businesses overlook, resulting in a higher tax bill than they should be paying:
Admittedly, these suggestions only scratch the surface of steps you can take to ensure you're paying the absolute minimum in income taxes.
Hopefully, however, this very discussion will inspire you to do further research on your own to find other ways in which to trim your business's tax bill.
About the author
Don Amerman is a freelance author who writes extensively about a wide array of business and personal finance topics.