6 Tax Hacks For Small Business Owners and the Self-Employed

One of the best ways to save money and meet your obligations is by paying more attention to your taxes. With a few simple (and most importantly, legal) tax hacks and business tax deductions, you can enhance your small business in more ways than one.

Here are a few tax hacks for the self-employed.

Tax Hack 1: Use tax filing tools

It’s never easy to file taxes being a small business owner; you already have so many things to worry about. But using tax filing software should make it a lot easier. The benefits of using a tax filing tool include:

• Avoids errors and improve accuracy when calculating your adjusted gross income
• Keep yourself organized and save time
• Gives you plenty of safeguards you probably cannot afford otherwise.

This first tax hack is an important one: use tax platforms to accurately file tax returns and enjoy full refunds whenever they apply. Accurate filing is crucial to ensure you are correctly reporting your income taxes and taking advantage of all available deductions.

If you’re looking for an easy way to organize tax deductible business expenses, the free ZenBusiness Money app automatically tracks them for you. It handles invoicing, too!

Tax Hack 2: Prepare for the future

As a small business owner, you can’t take long-term goals lightly. Preparing for tomorrow and staying up to date with tax information will help.

Retirement

For instance, you should already have set your retirement goals by now, and if you haven’t — now’s the time. In fact, by investing more funds into your retirement today, you could end up with handsome tax benefits. Check out IRA tax hacks (and 401k contributions if you still have a “day job”) and harness your taxes with retirement savings.

There are, of course, limits to the contributions you can make to these accounts. For example, the current contribution limit for an IRA is $7,000 (plus a $1,000 in “catch up” money for those over 50). But that $7,000 in contributions could have a decent effect on your taxes (depending on your total tax picture).

Continued Education

Don’t stop there. Stay on top of your game by taking courses and workshops that will help you improve your business finances, marketing and stay current on industry best practices. The best part? Continued education for your business is a tax deductible expense, and it’ll help improve your business skills as well. That’s a win-win.

RELATED: How to Track Tax Deductible Expenses Automatically

Tax Hack 3: Keep a financial footprint

Here’s the obvious one a lot of people ignore: receipts. Don’t throw them away yet. Lots of receipts for services and goods are deductible from taxes as a business expense and can balance your taxable income. Depending on your small business structure, you might find lots of deductibles you can take advantage of.

If keeping paper receipts for months or a whole year is cumbersome, start digital storage for them. Use any of the different apps out there to keep your paper trail digitized by capturing the receipts, storing and organizing them in one unique place.

Tax Hack 4: Know your home office tax deductions

Do you operate your small business from home? Do you know it’s possible to deduct expenses from it? Yes, you can deduct certain things like repairs, mortgage interest, internet services and other utilities.

To “hack” this, you’ll have to calculate the part (or parts) of your home you’ve dedicated to running your small business operations. Tax software (or your accountant) can help calculate the amount while the deduction is open for renters and property owners alike.

Tax Hack 5: Keep an eye on the tax calendar

You should never miss a tax deadline or wait until it’s too late to comply with tax laws. However, you could be really busy and hardly remember to keep up with everything.

With deadlines always on the horizon, you can rely on free tools provided by the IRS to avoid missing critical tax deadlines. Check out the IRS calendar for businesses and self-employed individuals and you’ll help yourself avoid missed tax payments.

Tax Hack 6: Mind your business equipment

If your small business purchases equipment, you can make something out of it at tax time. Familiarize yourself with Section 179 and Form 4562 to ensure your equipment bought in 12 months is a qualifying expense for your budding business. In the long-term, this will be invaluable and will bring much-needed cash savings. Properly accounting for equipment expenses can significantly impact your net self employment income and reduce your overall tax liability.

Have old equipment? Don’t sell it yet. Incurring an ordinary loss (by abandoning it) might be a better option because it can be fully deductible. Study Section 1231 and ascertain how your old equipment will be classified to make some tax saving from it.

Understanding Tax Obligations

As a small business owner, it’s essential to understand your tax obligations to minimize your tax liability and maximize your profits. Tax obligations can be complex, but breaking them down into smaller components can make them more manageable. Here are some key aspects of tax obligations that small business owners should be aware of:

• Taxable Income: This is the income that is subject to income tax. For small business owners, taxable income includes business income, investments, and other sources of income. Understanding what constitutes taxable income is crucial for accurate tax filing and planning.
• Tax Deductions: These are expenses that can be subtracted from taxable income to reduce tax liability. Common tax deductions for small business owners include business expenses, mortgage interest, and charitable donations. By maximizing your tax deductions, you can significantly lower your taxable income and, consequently, your tax bill.
• Tax Credits: These are direct reductions to tax liability, rather than deductions from taxable income. Tax credits can be more valuable than tax deductions, as they provide a dollar-for-dollar reduction in tax liability. Familiarize yourself with available tax credits to take full advantage of these opportunities.

Additional Tax Categories to Be Aware Of

In addition to understanding tax obligations, small business owners can use various tax hacks to minimize their tax liability and maximize their profits. Here are some additional tax hacks that small business owners should be aware of:

• Qualified Business Income Deduction: The qualified business income deduction, or QBI, can be one of the most overlooked LLC hacks for taxes (and it applies to other business types, too). This is a tax deduction that allows small business owners to deduct up to 20% of their qualified business income. This deduction can be valuable for small business owners who have a high amount of qualified business income. Make sure to check if you qualify for this deduction to reduce your taxable income.
• Retirement Account Contributions: Contributing to a retirement account can provide tax benefits for small business owners. Contributions to a traditional IRA or 401(k) are tax-deductible, and the funds grow tax-deferred, meaning you pay tax when you withdraw funds. This not only helps in securing your future but also reduces your current tax liability.
• Estimated Taxes: Small business owners who expect to owe more than $1,000 in taxes for the year may need to make estimated tax payments. Making estimated tax payments can help avoid penalties and interest on unpaid taxes. Stay on top of your estimated tax payments to manage your cash flow and avoid surprises at tax time.
• Self-Employment Taxes: Small business owners who are self-employed may need to pay self-employment taxes. Self-employment taxes are used to fund Social Security and Medicare and are typically paid by self-employed individuals who earn a net profit of $400 or more from their business. Understanding and planning for self-employment taxes can help you manage your overall tax liability.

By understanding tax obligations and using additional tax hacks, small business owners can minimize their tax liability and maximize their profits. It’s essential to consult with a tax professional to ensure that you are taking advantage of all the tax benefits available to you.

Summary

From tracking tax deductible items to preparing for the future, small and consistent practices help with taxes. Use these 6 tax hacks for the self-employed, and you’ll be off to a good start.

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.