Even before 2020, running a successful business was already hard enough in the competitive business environment. Then came the pandemic that ravaged throughout the year. The lingering effect of which on the economy and finance is still quite palpable in late 2021.
Above all, the intricacies of tax provisions further complicate the problem. Don’t these tax provisions and legal jargons seem all Greek to you? Too often, we fall into difficulty while deciding which tax slab is eligible for us.
That is why one should seek help from financial experts. Nowadays, it has become easier with online professional help being made available by Taxopia tax online. Also we have come up with some tips for your small business that can guide you in matters related to taxation. These are as follows –
1. Consult with your accountant:
You should be in touch with your accountant throughout the year, not just when you need to file the tax returns. The benefits of working closely with your accountant are multifold. An accountant will always notify you of the red flags. A professional accountant keeps track of your income and monitors your spending so that you never experience a cash-flow problem.
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Working with your accountant will ensure you quick growth and more profit. So, make sure to hire the right accountant with adequate experience and work with them since the first day of opening a business.
2. Properly classify your business:
In 2021 US Govt. reduced tax-slab on certain businesses like legal, medical, and accounting. Correctly classifying your business to the IRS will see a deduction in tax. Don’t forget to ask your tax professional whether your state has a Pass-Through Entity provision.
You can also talk to tax assistants online to understand the difference between a pass-through business and a C-corporation. If your business is eligible for being classified as a C-corporation, you might receive a considerable tax deduction (35% to 21%).
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3. Take advantage of home-tax deduction:
Furthermore, you will be eligible for a tax deduction if you have moved your business to your home. According to SBA, even before Covid, 50% of US businesses were home-based. Independent workers, freelancers are familiar with home-tax deduction. But small business owners often neglect this area while filing their tax returns.
This lets you deduct business expenses like rent, mortgage, and property taxes. To be eligible for this, your home must be the primary place of your business. The added benefit is that it can be any part of your house- a part of your garage, guest room, or anywhere around your property. By a rough estimation, the tax slab is 5$ per square foot for your home office space.
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To aid small businesses US Govt. passed the CARES Act Paycheck Protection Program. This allowed business owners to defer their share of payroll taxes. Additionally, any business expense incurred through the PPP fund is deductible.
The caveat is that if the part of the money you borrowed was not forgiven, you must add that to your taxable income. If you are eligible for this, you must keep track of your loans- how much was deducted and how much was forgiven. Bring this up while consulting your tax expert, as this is a fundamental issue. Depending on your expenses, they might advise you to pay the payroll tax early to claim last year’s deduction.
5. Make a prudent retirement plan:
As per govt. data, the maximum contribution for IRA is $6000, with an extra $1000 for people aged over 50. You have plenty of options regarding the retirement savings plans like Simplified Employee Pension, 401 (K), or SIMPLE IRA depending on your contribution to the retirement fund.
Some small businesses owners are eligible for a tax credit while starting any retirement plan. Moreover, some plans allow you to make contributions till the end of that financial year. So, figure out your tax liabilities in the first quarter of the financial year itself. This will enable you to save more for the future.
These are the essential facts you need to remember while filing your tax return. It is always beneficial to talk to your financial consultant and tax experts. In these troubled times, taking legal benefits and prudent financial decisions will not only let you stay afloat but also expand your business with time.