If you run a business, you have no choice but to pay taxes to the government. Now we know that most of you out there don’t like to pay taxes, but since we live in a system that we have to abide by the rules of, we are going to have to do it whether we like it or not.
But wouldn’t it be nice to save on our taxes, particularly during a global pandemic when businesses are strapped for cash. Today we are sharing 5 ways to save money on taxes, so without further ado, let’s get started.
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1. Apply For R&D Tax Credits
Launched by the US government in 1981, the R&D tax credit program is often overlooked because companies are either unaware of it or unsure if they would qualify. If you have a company that is developing new or improving existing products and technologies, you can get approximately 10% R&D Tax Credit from the Federal government to offset income taxes or to offset payroll taxes up to $250,000 per year. The research and development tax credit allows companies to save a lot of money on their taxes and use it to fund other aspects of the business. Canada has a similar program called Scientific Research and Experimental Development (SR&ED) which enables Canadian Controlled Private Corporations to get a refund of up to 64% of their R&D expenses.
2. Fund Employee Retirement Plans
Another great way to save money on your taxes is to open and contribute to your employee’s retirement. Not only is this going to allow your employee to save up for their retirement, but when you save the money for their retirement, you will also be able to deduct that amount from your yearly tax payment. There are multiple rules and regulations that you have to abide by, but once you open and contribute to their 401K, that same amount will be able to be deducted from your tax that you owe the government.
3. Set Up a Health Savings Account
One of the best ways a small company can save on their taxes is by setting aside money for their medical needs. We know that medical costs are increasing at an exponential rate so it is only fair to save money for you and your employees while you all are healthy and able. You can do just that by opening a health savings account (HSA) if you are eligible for a high-deductible health plan. This way companies can save a lot of money on their taxes and any medical costs that may occur.
4. Work Out your Depreciation Deductions
The next thing that you can do to save money is that you can deduct a certain amount for the equipment you buy for your company. Businesses can take tax write-offs on the equipment and things that they have bought for their business. This means that if you have bought an equipment, land, vehicle, or any major asset can be used to reduce your tax amount.
There are two types of tax deductions that you can apply for. The first is the section 179 deductions, in which you can apply for the assets that you have bought in the same tax year, which only applies to the first year of the purchase. The second is the bonus depreciation, which is an extra benefit for buying assets, and you can deduct 50% to 100% of the cost of assets that were placed in service between 2017 and 2023.
5. Deduct Home Office Expenses
If you have an area in your home that you use as your home office, or for any other business purpose, you may be able to deduct those expenses based on the square footage that you use exclusively for business.
You can deduct 100 percent of direct expenses, such as painting or repairing just your office, as well as indirect expenses such as a percentage of your electricity, rent, etc. for your whole house.
