Simple ways to cut your tax bill without breaking the law
By Carey Lampel, LLM
EBS Consulting, Inc
Whether your business be large or small, you know you’re going to have to pay several different taxes: federal, state and local. But it might surprise you to know that the amount of tax you pay has to do with several factors other than the amount of profit you make in a year. For example, different taxes apply to a greater or lesser extent according to the industry you’re in and the type of business you have.
It is perfectly legal to organize your business in such a way that you maximize your entitlement to all the available deductions. Such a strategy is not tax evasion; it is tax avoidance.
Consider the structure
What do we mean by structure? Maybe your business is a sole proprietorship. But have you considered the other options? The same business might be structured as a partnership, a corporation, a subchapter S corporation or an LLC. Go over these options with a qualified professional with a view to reducing your tax liability. Would you be any better off if the profits and losses of your business were reflected in terms of the distributions to the owners in such a way that they are the only ones who pay the taxes? That’s how a subchapter S corporation operates.
Capital Expense Deductions and Business Expense Deductions
A key deduction your business can make is a business expense deduction. This includes personal business expenses, such as a company car and home-based business expenses, if you use part of your house to carry out some of your business tasks.
Another type of deduction is a capital expense deduction. The fastest way of deducting capital expenses from your company’s taxes is by depreciating your capitals, which means you can deduct a part of the total cost of your capital each year.
Hire independent contractors
Reduce your payroll taxes by hiring independent contractors instead of regular employees. Verify you are complying with IRS requirements so you will enjoy these tax benefits. Make sure your relationship with your independent contractor meets the criteria that classify him as an independent. You need to be able to control or direct the end result of his work but not the ways in which he accomplishes this result.
Independent contractors are in business for themselves, because they take full responsibility for their own tax obligations and benefits. Once you determine that you hired an independent contractor, you need to file the necessary forms with the IRS: W-9 forms, contractor’s business licenses, certification of insurance and a 1099-MISC form to report payments.
Become more energy efficient
One of the best arguments for making your company greener, or more environment friendly, is to take advantage of government tax incentives. There may even be grants or loans available to help you do this so that you qualify for extra business deductions and credit options. By qualifying for a tax credit, you will reduce your liability for corporate taxation.