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Income Tax Tips for Small Business Owners

As a small business owner, we recommend that you continually look for ways to minimize your tax burden. Because the tax law this year is tricky given the CARES Act and Tax Cuts and Jobs Act, this is a year when partnering with a tax professional is especially advisable. An experienced CPA knows all of the state and federal tax laws and will have income tax tips that will be sure to put more money in your pocket.

When you meet with us here at Joan W. Halter CPA, we will help you navigate the following:

  • How Your Business Should Pay Taxes

Chances are you’ve established your business as an LLC, pass-through business, or C-corporation, and each of these must abide by different tax rules.

Pass-through businesses (meaning the owners pay the taxes as private individuals rather than through the business) can deduct 20% of their federally taxed business income. While certain types of businesses (e.g. legal, accounting, and medical) will have their deductible capped, this deduction has traditionally been the most beneficial type for the majority of small business owners.

This year, however, C-corporations may have the advantage, since the 2017 Tax Cuts and Jobs Act brought their taxes down from 35% to 21% across the board.

Whether it’s best for your business to file as a pass-through or C-corporation depends on your specific situation. We look forward to helping you decide how to file in 2021.

  • The Effects of New Tax Legislation on Your Small Business

2016 – 2020 brought new tax legislation into effect, and there have been additional changes since January 2021. Small business owners spend up to 120 hours every year on accounting and tax-related work. This year, it makes sense, both financially and from a time-management perspective, to allow a professional team to take this responsibility off your shoulders.

  • Creating a Plan to Reduce Your Tax Burden

There are likely steps you can take to reduce your tax burden in 2021 and upcoming years. Purchasing new equipment, accelerating your income, and/or delaying expenditures, contributing to charities, and paying your taxes on time are all manageable approaches that may benefit your small business. Your unique situation will dictate which steps, if any, are appropriate.

  • Assessing Tax Implications of Federal Aid Payments

Your small business may be eligible for stimulus payments or assistance of which you’re not aware. We will discuss the tax implications of accepting federal funds. If you have already received assistance, we will analyze your year’s tax burden and discuss how these additional funds will affect your bottom line.

  • Finding the Benefits Resulting from any Losses You’ve Sustained

If your business experienced losses in 2020, 2019, or 2018, the CARES act means you may qualify for an immediate refund. If your situation dictates, it may be beneficial to continue to operate at a loss in 2021 by increasing your expenditures.

  • Retirement Planning

Do you have an established retirement fund? Are you contributing sufficient funds monthly? As a small business owner, you have a myriad of options available to you, among them SEP IRA, SIMPLE IRA, 401(k), and plans for profit-sharing. Each plan has pros and cons, and we would love to discuss the details with your hopes and dreams in mind.

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