When it comes to financial planning, one of the most common concerns for small business owners is how to reduce taxable income. Luckily, there are a number of strategies business owners can implement to reduce their taxable income that can also help them improve cash flow, reinvest in their business, plan for retirement, attract and retain employees, and more. The experts at Patterson & Company Certified Public Accountants, a firm specializing in working with small businesses weigh in with their top 10 ways small businesses can reduce taxable income.
- Business expense deductions— make sure you’re deducting all the legitimate business expenses available to you and keeping thorough records of them. If in doubt, consult your CPA.
- Home office deductions—If you work from home, you may be eligible to deduct a portion of your home expenses, such as utilities, rent or mortgage interest, based on the part of your home you use for business. Ask your CPA about setting up an accountable expense plan.
- Retirement contributions—Contributing to a retirement plan such as SEP IRA, SIMPLE IRA and solo or regular 401(k) plans can reduce your taxable income.
- Health insurance premiums—If you’re self-employed, you might be able to deduct the premiums you pay for medical, dental and some long-term care insurance for yourself and your dependents.
- Depreciation—If your business buys equipment or property, you can deduct depreciation costs over several years from your taxable income.
- Education and training expenses—Costs for education and training that maintain or improve skills required in your business may be deductible. Offering your employees an educational assistance program now has additional benefits that can help you attract and retain talent.
- Hiring family members—Employing family members can shift income from your higher tax bracket to their lower one, and you can deduct their salaries as business expenses.
- Business structure—Changing your business structure can sometimes result in tax savings. For example, some businesses could benefit from being taxed as an S corporation instead of a sole proprietorship.
- Tax credits—Take advantage of any tax credits your business is eligible for. These can include credits for hiring certain types of employees, implementing environmentally friendly practices, or research and development. Restaurants and similar establishments may qualify for a FICA Tip Credit.
- Investments in technology or equipment—Section 179 of the IRS tax code allows businesses to deduct the purchase price of qualifying equipment or software purchased or financed during the tax year.
Bob Patterson is the founder and president of Patterson & Company Certified Public Accountants. About Patterson & Company CPA.
Founded in 2011, Patterson & Company Certified Public Accountants provides clients with specialized, industry-tested tools and expert knowledge. With expertise in the hospitality industry as well as other service-based businesses, the firm offers year-round accounting and advisory services, supporting all back-office tasks through their BOSS advanced online platform that manages payroll, bookkeeping and vendor payments alongside the tax planning and compliance services of a full-service CPA firm. For more information, visit https://www.patterson.cpa.
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