To reduce your tax, you need to keep track of your deductions (the most hated part of being a small business owner). Let’s say you make 100,000 but you have expenses of $10,000 your taxable income would be $90,000.
Tax deductions reduce how much of your income is subject to taxes to begin with. Now let’s say you actually get a refund of 500.00 if you add a tax credit instead you’ll receive $1,500.00
So, if you owe $10,000 you would only pay $9,000. Let’s say you’re eligible to receive a tax credit for hiring a military veteran of $1,000. Tax credit will reduce the amount of tax that you owe, giving you a dollar for dollar reduction of your tax liability. There’s a Difference Between a Tax Credit and a Tax Deduction Make sure you check in with your tax specialist throughout the year so understand how these may affect you and your business. the government created several short-term tax savings opportunities for those affected. Waiting for a once-yearly meeting with your CPA may not leave you enough time to learn about and manage these changes.įor example, in 2005, after hurricanes Katrina, Rita, and Wilma struck the U.S. Many changes can benefit you as the business owner-but only if you know about them and you have time to respond. Major legislation, court cases, IRS rulings, and even natural disaster can all affect your taxes and they are constantly changing. Whether you have an existing business or you’re just starting out, you have some choices about your entity type but you should contact an attorney to weigh some pros and cons of each one depending on the industry and type of your business. You may need to determine when it’s appropriate to change over to a corporation as it may save you some money in the future. Most companies start out as a sole proprietorship, an LLC or a Partnership.
But you need to know a few things: Pick an Entity Type that works for you As a business owner, you have a huge amount of control over your business expenses….that means if you have a plan for your business in the up coming few years you can control your tax deductions.
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