Paying taxes is a legal obligation that both individuals and businesses must meet to avoid insolvency or potential imprisonment. While tax evasion is unlawful, it’s crucial to understand how to mitigate your tax liabilities effectively.
For freelance workers or those who run home-based businesses, numerous tax benefits can derived from your incidental home business expenses. Even for larger corporations, there are several approaches to reduce your tax burden.
Charitable Donations
By making charitable contributions, both individuals and enterprises can lower their tax liabilities. Be it donating goods to your local second-hand store or writing a cheque for a widely recognized charity, always remember to receive a receipt and record the exact value of your contribution.
It’s crucial to investigate the legal limits on annual donations before declaring a significant amount. Donations not only decrease your tax commitments but also foster a sense of fulfillment by contributing to worthy causes.
Increasing Benefits Over Salaries
A viable strategy for reducing business taxes is to amplify the amount invested in employee benefits instead of raising their salaries. Some employees may prefer increased healthcare coverage to a pay raise. However, ensure your employees are satisfied with such an arrangement before implementing it.
Creating an “Accountable Plan”
Implementing an accountable plan in your business operations can potentially minimize both employee income taxes and your payroll taxes. This plan would allow you to compensate your employees for work-related expenses, such as travel costs, without it being categorized as income. These specific reimbursements won’t appear on the employee’s W2 form.
Employer Contributions
Contributions to employees’ retirement funds are tax-exempt for businesses. This measure not only saves on taxes but also benefits your employees.
Investigating Tax Credits
Availing of specialized business tax credits and incentives, such as ADP business tax credits, can help your company qualify for the lowest tax rates. Dedicate some time to research which tax credits may be available to your business.
Your accountant or tax preparer should be well-versed in available tax benefits for your business. Inform them of your interest in maximizing savings.
Never accept paying the highest tax rates for your business. Invest time in discovering discounts and exploring methods to reduce your tax liability. SmartAsset.com is a great resource to start with when calculating your tax repayment.
