If you are running your own small business, then chances are that taxes are one your biggest expenses. Although having a good tax plan is place is an effective strategy, you can save more money for your business with our small business tax tips. Here are some useful ideas that can help you reduce your business taxes in 2022.
Tip 1: Review the employee retention tax credit
Did you know that you still have enough time to revisit and amend your tax returns (federal payroll) from the years 2020 and 2021? In order for your business to be eligible for the tax amendment, you must provide proof that your business was fully or partially shut down during the COVID pandemic. If your business was not shut down, you can also prove that it suffered a 50% decline in revenue over the last 3 quarters of 2020 when compared to the previous quarters of 2019.
Additionally, your business can also be eligible for the employee retention tax credit amendment if you can prove that it suffered a 20% revenue decline over the first 3 quarters of 2021 when compared to the corresponding 2019 quarters. In case your business is eligible for the amendment, the credit could add up to about $7,000 per employee for every quarter in the year 2021.
Also, if the credit turns out bigger than the payroll taxes your business paid during that period, you could have that money refunded back to your business. If you need help calculating the credit, reach out to PeopleStrategy to calculate it for you.
Tip 2: Make use of the work opportunity tax credit
The work opportunity tax credit can help reduce the taxes of your business by up to $9,600 per staff member each year. On top of that, this tax credit was extended by the government up to the year 2025, which gives your small business ample time to save more from taxes. The main thing you need to note about the work opportunity tax credit is that it only works if you hire the following type of people in your small business, among other eligibility standards:
- Someone who was recently released from prison
- An individual who just retired from the military
- A person that has been unemployed for a period of more than 6 months
Tip 3: Help employees pay their student loans
Are you aware that employers can take deductions worth $5,250 per employee each year up to 2025 when assisting employees with student loan repayments? The icing on the cake is that the employees will not get taxed during that period. This means that your business will not be obligated to pay the payroll taxes of employees dealing with student loans. We recommend that you strive to hire a diverse mix of talent for your business whenever you recruit, since it would be likely that your talent pool would be faced with student debt. Then, make a special donation or bonus payment to them each year that they can direct towards their student loans. This will go a long way in saving your business’s money that would otherwise go to taxes.
Tip 4: Hire a family member
One of the easiest ways to save money on taxes for your business is by employing a family member. How? The Internal Revenue Service (IRS) gives businesses that hire family various options that shelter the income from taxes. When you hire family members e.g. your children, your business will pay a lower marginal rate tax, and in some cases, tax may be eliminated on the income you pay to your children.
A great example is sole proprietorships. If you run your own sole proprietorship, you will not be required to pay Medicare taxes and social security on the income you pay to your children.
Additionally, the IRS can reduce the amount of taxes on your business if you hire your spouse. Your spouse would not be subjected to the Federal Unemployment Tax Act (FUTA) tax. Therefore, bringing family into your business can save a lot of money.
5. Research dozens of small business tax deductions
Small business owners have the advantage of dozens of tax deductions that can significantly lower their tax bill — the real challenge, however, is figuring out which ones.
Costs like business meals, marketing spend, office rent, travel, and other business expenses can be written off or deducted at tax time. But every deduction has its own eligibility rules. For example, meals for a company-wide party are 100% deductible, but meals for entertaining clients are not 100% deductible. A tax professional can ensure you’ve deducted expenses correctly before you submit your return.
To maximize your tax deductions, you’ll want to itemize your deductions on your tax return. Itemizing takes a bit more time than taking the standard deduction, and, more importantly, requires accurate record keeping. But the effort will pay off in significant tax deductions.
Need help with small business tax tips? Get in touch with us today.