Whether large or small, costs are major concerns to every business enterprise. If not minimized, they can reduce the profitability of a business.
Tax is one of the major expenses that contribute to the total costs. It’s a compulsory contribution to the government. It’s levied on total business annual profits.
The tax rate applicable varies between states and the business structure. Every business owner should employ the best practices to minimize their taxes or make use of accounting and tax services. You might want to check this list of deductions to determine how to reduce your tax cost:
- Write Off Bad Debts
Most businesses provide goods and services on credit. It’s a situation where customers take goods to their homes and pay for them later. Such customers are referred to as debtors or accounts receivables.
Like businesses, customers can also run bankrupt to the extent that they can’t settle their debts at all. Some of your debtors can relocate in other scenarios, making it difficult to locate them. You might not recover your money from such customers.
The law requires you to declare customers who have proved they’ll not pay their dues as bad debtors. Such debts or customers should be written off. It involves deleting their names from your debtor’s book.
However, you must prove that you tried to recover your money from such customers, but your efforts never brought any positive results. Besides, the taxes man will require you to produce minutes of meetings by directors where the decision was made to write bad debts off.
Bad debts written off should be treated as an expense to the business. They reduce your profits. That’s why you need to deduct them from your sales before calculating your tax amount. Doing so helps reduce your tax liability. It goes a long way in allowing you to maximize your profits.
- Fund A Staff Party
Motivating workers is essential to the success of your business. It’s a process of rewarding workers to boost their morale. When you appreciate your workers, they’re likely to boost productivity, thus allowing you to generate more sales.
There are various ways of motivating your workers. However, the most effective strategy is to take them to a party and fund it.
Although funding a staff party can cost you a significant amount of money, it can be beneficial in the long run. Such costs are tax allowable. Deduct them from your sales to help reduce your tax liability.
- Train And Develop Your Workers
Workers form an integral part of business assets. Without them to assist you with daily tasks, your business might not succeed. However, your employees need to possess the right skills. That’s why you need to train and develop them continuously. It’s a process of equipping them with new knowledge. You can achieve this by organizing seminars and workshop programs.
You’ll use some money to train your workers. These include transport costs, paying facilitators, tea, lunch expenses, and other associated fees.
Staff training and development costs are tax except. Factor in such costs in your total sales to help minimize your business annual tax bill.
- Work From Home
The dawn of modern technologies and the internet allows for remote working. It involves working from home or other convenient places other than the physically designated business office.
Working from home eliminates commuting stress. In addition, it promotes a better work-life balance. However, it attracts additional costs like heating, lighting, and internet subscription fee, which can reduce your business profits. But the good news is that the tax law allows you to claim a portion of costs when you work from home. It lets you minimize the amount payable to the government as a tax.
- Fund A Retirement Scheme
Today you might be very active and productive. However, this might not last forever. At some point, you’ll become too old to work.
That’s why it’s advisable for every person when business owners or employees start building a retirement fund. It is a financial plan or strategy aimed at taking care of one self’s future. In other words, it involves saving and investing money meant to sustain you during your retirement age. Identify your best retirement saving scheme.
Funding a retirement scheme is one of the most effective strategies to boost your life in the future. However, it also has an immediate benefit to your business. It can help reduce your total costs.
Contributions to a retirement scheme are tax allowable. They should be deducted from total sales before determining the tax payable. It helps minimize your total annual tax bills.
- Contribute To Charitable Organizations
Are you running a small or local business? If yes, you must strive to build better relationships with your surrounding communities. Such people form a major part of your customer base.
One of the best ways of building strong relationships with local customers is funding charitable institutions. These include orphanage homes, seniors or older people centers, churches, and other non-government organizations.
Customers like associating themselves with any business enterprise that makes the world a better place for vulnerable communities. Supporting such individuals enables your business to earn loyalty from customers. It enables you to generate more leads and customers.
Not only does funding charitable institutions helps develop trust with customers, but it also lets you save on tax. A portion of donations or contributions to such institutions is tax-deductible. So, why not minimize your tax liability while improving the lives of others in the community?
- Pay Taxes On Time
Businesses always experience insufficient capital to fund all their operations. Paying workers, launching other projects, paying rents, settling loan dues, paying suppliers, all these require a lot of money. A business may lack enough capital to address all these concerns. For that reason, most business owners decide to postpone tax payments. Little did they know that failure to submit taxes on time could cause more harm to their businesses.
Paying your taxes can attract some fines or penalties. It causes you to pay more taxes to the government. Submit your loans on time to avoid penalties and other related charges. It’s one of the best strategies to reduce your cash outflow, thus allowing your business to remain afloat.
- Hire Family Members
Including your family members in the business workers pool is another effective strategy to reduce your tax burden. It can be your spouse or children. Hiring such individuals can increase your tax savings. The amount of savings depends on the type of your business.
A sole proprietorship type of business stands a higher chance to save on tax. For instance, when you employ your children, you’re exempted from paying social security tax on their salaries until they reach 18 years. Also, you’ll be exempted from paying federal unemployment tax on their wages until they turn 21 years.
At the same time, the law allows sole traders to reduce federal insurance contributions and unemployment taxes when they employ their spouses. All these helps reduce the total annual tax burden.
Owning a corporation can also minimize your tax burden when you employ family members. For instance, employing your children under 18 years allows you to deduct their salaries from your sales before calculating your taxes. However, there’s a set maximum amount of salaries your children should earn to allow you to enjoy this tax benefit. This limit varies between states. Any amount beyond the set limit is taxable.
- Fund A Health Insurance Scheme
The health of your family members and employees is essential to the success of your business. When your workers fall sick, it increases your business downtimes. It hurts your business productivity.
On the other hand, when a family member gets sick, it can affect your business finances. It’s because you’ll be forced to use your business funds to pay for medical bills for such a member. You can avoid this by funding insurance schemes for your family members and workers.
An active health insurance scheme allows your family members and workers to go for medical checkups. It helps identify and treat minor health issues before they become too big.
Joining a health insurance scheme is one of the best ways to minimize your business cash outflow in the future. At the same time, it enables you to minimize your annual costs. Contributions to health insurance schemes, whether private or public, are tax allowable. Subtract such costs from your sales when determining the tax payable to the government. It helps minimize your annual tax burden.
Tax is one of the major incomes of the government, and without it, it might fail to operate efficiently. For instance, local and central governments require funds to pay civil servants and run other public projects. For this reason, businesses should submit a portion of their profits to the government as tax. Tax is an expense to a business because it reduces the gross profit. You might want to reduce your tax burden and maximize your profits. The strategies discussed in this article are legal ways to evade paying taxes. Implement them to minimize your annual tax bills.