10 Ways To Reduce Tax Burden For Your Small Business
American small businesses are the engine of our economy and create the majority of jobs. However, these same businesses often have higher tax burdens than those in other countries, contributing to this problematic issue. To prevent any additional burden, some small businesses are taking active steps to reduce their taxes by employing number of tactics such as forming partnerships with entities that offer foreign tax credits or adjusting accounting methods. With some simple actions, you can lessen your corporation's tax burden and contribute more to society as well!
There is nothing more satisfying than when you take action and see results. But don't forget about big picture: a lot of small business owners fail because they don't reward themselves for all the work they do. If you've decided to start your own business, and are worried about paying the tax bill, here are 10 ways how to reduce your tax burden:
1. Don't File Early And Often
Many small business owners file their tax returns early, before it's due. The problem with this is that the IRS often takes a much harsher view on a return filed too early than a return filed later. So for self-employed individuals who do not have access to other sources of income such as minimum wage or overtime pay, it's best to file as late as possible without filing too late.
2. Hire Someone Already Filing
If you are self-employed, you should hire others to help with your tax obligations. By virtue of hiring someone to file your taxes, you will likely be able to take advantage of the services they offer and not have to pay their normal fee or pay a penalty. However, if you hire people who are not currently paying taxes, you will be penalized under the "Responsibility You Will Not Pay Taxes On The Income You Are Hiring Someone To Pay" code.
3. Get An Extension
If filing early doesn't work out for you, there's some good news: an extension can be requested by filing Form 4868 and following the steps in step four below. This will give you an extra six months to file and should allow you more time to get your taxes in order.
4. Make Sure You File The Correct Form To Request An Extension
The extension form is named Form 4868 and not Form 706 (the estate tax return). If you make a mistake, your extension will be denied and a late filing penalty of $135 could be applied. Filing an extension gives you the extra six months most taxpayers need to file their return. If you believe that this extra time is not enough, consider getting an automatic filing extension that can be requested by phone at 1-800-829-4059 or by e-filing through EFTPS at www.eftps.gov.
5. Give Yourself Some Time To Pay
If your filing extension is approved and you have a lot of tax debt, consider applying for an installment agreement with the IRS. This can help you get out of a lot of money if you make payments regularly over time. If you are having trouble coming up with the cash to pay at the time of filing, a payment plan can be ordered that will allow you more time to make payments and not have so much money owed by the deadline.
6. Tell Others About Your Plan
Small business owners often file their taxes as self-employed individuals because they want to save on taxes, but as a result they face extra reporting requirements that many simply do not want to deal with. If you are someone who wants to file as a corporation, consider getting a tax professional to help you with the process of making the change. If you already file as a corporation but your taxes are based on self-employed income, find out if your accountant can help you make the switch.
7. Hire A Tax Attorney Or Tax Pro
If having a tax attorney or tax preparer helps cut down on the amount of stress in your life and allows you to perform better at work, then doing so is worth it. This is especially true if they can reduce their bills, which is what everyone hopes for anyway! You can also hire somebody who will do both your returns and something else for a lower rate than most people charge.
8. Are You Self-Employed? Then Don't Do Your Taxes Yourself!
It is better to outsource your tax liability than risk underpaying or overpaying by yourself. Typical web-based payroll software is not designed for their ease of use. If you are self-employed, you are even more likely to forget something when doing your own taxes and not file on time or with the correct form. Hiring a certified professional can save you much heartache and thousands of dollars in the end!
9. If You're Not Sure There Is Enough Income To Pay The Tax Bill...
If you're self-employed and you're not sure there is enough income to pay your tax bill, consider filing as a partnership. Another option is to file as an S corporation so that you can pass the tax burden down to your shareholders or partners. This way, you'll at least have the money available and will know how much excess you are paying. On top of that, the S corporation tax rate is much lower than a sole proprietorship!
10. Ask Big Brother For A Closer Look At Your Return
The IRS doesn't want TOO many people to file early, so they make it more difficult for individuals who are self-employed and don't have access to other sources of income. This means that you might get audited if you file your return too early, but you will also be subject to a higher audit rate if you are self-employed and use something like Schedule C or the like. This is because Schedule C is designed for small business owners who are very likely to be underreporting their income. If you have nothing to hide, then go ahead and file early.
Self-employed individuals often have a lot of things going on with their personal finances and taxes. Taxpayers who are self-employed must make sure they work hard at managing their money and making sound financial decisions in order to avoid being overwhelmed by the burdens of being a small business owner.
If you're self-employed, you're busy enough without having to worry about your taxes as well.
Conclusion
These are just a few tips on how to file taxes as an independent contractor. The main thing to remember is that if you are self-employed, you'll need to pay more money in taxes because it will be scrutinized closely during the year.
The IRS is not overly concerned about taxpayers who are self-employed simply because they don't pay someone else to do their taxes for them. If you want to save on your taxes and appear to be an independent contractor instead of a company, then filing your taxes early or using one of the other many tax saving tricks available could help make your business more profitable and reduce your overall tax bill at the end of the year.