When it comes to small businesses, every penny helps. Tax-effective strategies are essential for SMEs to increase their profit and reduce tax liabilities. This way, you will be able to save more money for investment.
Fortunately for business owners in 2022, you can benefit from tax incentives put forth by COVID-19 Aid, CARES Act. The authorities put forward these legislations to give small businesses some relief during the lockdown.
If you’re not an expert on finance or income tax, consider hiring a professional bookkeeper or outsourced payroll service to help you plan your income tax strategies for the year-end taxes. Here are some tips for you to implement in your planning:
Small business owners can choose from several legal structures for their companies. You can either choose to operate as a sole proprietor, involved in a partnership, choose LLC (a hybrid of sole proprietary and partnership), or a corporation. The legal structure of your company will also affect your tax liability.
If you are making more revenue or have expanded your customer base as a small company, you can choose an LLC structure or a corporation. LLCs are taxed like corporations by IRS with Form 8832. Not many businesses opted for the C structure due to 35 percent tax cuts, but since the Tax Cuts and Jobs Act of 2017 (TCJA), the C structure taxes have dropped from 35% to 21%.
Another way to reduce tax liability is to benefit from tax reforms like TCJA, through which business owners can save up to 20 percent of the shares from the business revenue. However, this has its limitations and guidelines that need to be followed.
Small business owners with high profits can’t take advantage of this deduction. Businesses like architectural and engineering companies because profitability depends on the owner’s expertise.
Other examples of service-based businesses are:
- Consulting company
- Financial advisers
- Law corporates
- Medical firms
- Investment professionals
- Performing artists
In the past two years, the Congress has passed several legislations to give relief to SMEs in the US, such as;
- Coronavirus Aid, Relief and Economic Security Act (CARES)
- American Rescue Plan Act of 2021 (ARPA)
- Families First Coronavirus Response Act (FFCRA)
- Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA)
You must also learn about the provisions of each legislation to know how each of these laws affects your business operations and taxes.
Another strategy for tax planning is to accelerate or deter your business revenue. Income or revenue is recognized when a company receives the payment. If you believe your business will be in a lower tax bracket, you may consider deferring the payments until next year.
Confused? You’re not alone. Consult with our professional bookkeepers and accountants to help simplify tax and other financial solutions for you. Leave it to professionals to deal with bookkeeping and taxes strategies.
Contact us for more information today!