How to Reduce Your Business’s Tax Liability

No matter the size of your business, it’s important to understand and stay on top of your tax liability. Reducing the tax liability of your business is a crucial factor in the success and financial health of your business. The good news is that there are many ways to reduce your tax liability!

Here are 5 tips that can help reduce your business's tax liability:

1. Understand The Different Types of Taxes 
The first step to reducing your tax liability is to understand the different types of taxes that you may be required to pay. There are federal, state, and local taxes that businesses must pay.

• Federal taxes include:
• Income tax: Income tax is paid on the net profits of your business.
• Self-employment tax: Self-employment tax is paid on the income of self-employed individuals.
• Payroll tax: Payroll tax is paid on the wages and salaries of your employees.

• State taxes can include:
• Income tax: Income tax is paid on the net profits of your business.
• Sales tax: Sales tax is paid on the sale of goods and services.
• Use tax: Use tax is paid on the use of goods and services.
• Payroll tax: Payroll tax is paid on the wages and salaries of your employees.

• Local taxes can include:
• Property tax: Property tax is paid on the value of your property, including your office space and equipment.
• Business tax: Business tax is paid on the gross receipts of your business.
• Payroll Tax: By working with an experienced accountant or CPA, you can develop a tax strategy that minimizes your tax liability and maximizes your chances of a successful tax return. 

2. Consider What Business Structure Will Work Best for You 
The next step to reducing your tax liability is to consider what business structure will work best for you. There are four common business structures:

• Sole proprietorship
• Sole proprietorships are the most common type of business structure. This type of business is owned and operated by one person. The owner is responsible for all aspects of the business, including the taxes.
  
• Partnerships
• Partnerships are businesses that are owned and operated by two or more people. The partners are responsible for all aspects of the business, including the taxes.
  
• Corporations
• Corporations are businesses that are owned by shareholders. The shareholders elect a board of directors to oversee the business. The board of directors is responsible for all aspects of the business, including the taxes.
  
• LLCs
• LLCs are businesses that are owned by members. The members are responsible for all aspects of the business, including the taxes. 

3. Take Advantage of Deductions and Tax Credits 
Another way to reduce your tax liability is to take advantage of deductions and tax credits. Deductions reduce your taxable income, while tax credits reduce your tax liability. There are many deductions that businesses can take, including deductions for:

• Business expenses
• Employee expenses
• Retirement contributions

Businesses can also take advantage of tax credits, such as the:

• Research and development tax credit
• Low-income housing tax credit
• Renewable energy tax credit

4. Think About Timing When You Make Major Purchases
Another way to reduce your tax liability is to think about timing when you make major purchases. Purchases made in the beginning of the year can be deducted in the following year’s taxes. This can help you to reduce your taxable income and lower your tax liability.

5. Stay Up-to-Date on Changes to the Tax Code
The final way to reduce your tax liability is to stay up-to-date on changes to the tax code. The tax code is constantly changing, and it’s important to stay up-to-date on the latest changes. By doing so, you can ensure that you are taking advantage of all the deductions and tax credits that you are entitled to.

Closing Statement

Our team of financial experts have all the expertise and experience needed to lower your business tax liability. Keep your business finances in top condition. Call us to get started today.