According to Public Law 115–97, American companies are liable to pay 21% corporate income tax (CIT). However, that’s just the rate before deductions. An effective corporate tax is what a company pays after subsidies and other loopholes.
Keep reading today’s small business tax planning blog to learn how you can take advantage of these deductions to save money on taxes.
1. Reconsider Your Business Structure
Your business structure decides your tax status, which, in turn, decides your CIT rate. Changing your structure might be trickier than starting with the right one from the word go. However, you might be allowed this change if you’ve outgrown your current one by contacting the IRS.
If you’re eligible for a change in business structure, consider a pass-through to your private tax returns by converting to an LLC or partnership. These companies aren’t required to pay a CIT, so passing the taxes through to individual taxes would definitely put a cap on your tax returns.
2. Claim the Right Expenses for Tax Deductibles
The higher your profits, the higher your tax returns. The best way to reduce your profits is to claim any item remotely related to your business as an expense, signing them up for tax deductibles.
You can write off any ordinary or necessary expenses, such as:
- Gas money
- Maintenance for company vehicles.
- Corporate meals
- Energy bills
- Legal services
- Forensic bookkeeping
- Commercial lease
- Heavy equipment
- Logistical costs
3. Write-Offs Through Philanthropic Efforts
Charitable donations are eligible for tax deductibles, which is probably why the IRS has put a cap on them. Nonetheless, you can claim a tax-deductible of up to 25% on your business income by supporting your local charity or a cause you believe in.
Donations are also a great marketing strategy because they reflect strong brand values, making your target audience four times more likely to buy from you. Thus, you’ll be increasing sales and qualifying for tax write-offs through charitable efforts.
4. Prepare for Tax Season Like Clockwork
Preparing for tax season around the same time every year can help you save money on taxes. For one, you’ll have all the statements and documents you need instead of looking for them at the last minute.
For another, you’ll have a forecast on your taxes and plenty of time to try the above strategies. November is the best time to start on your taxes because it’s right at the end of the year, giving you enough material to evaluate your tax situation.
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