Tax Tips for Entrepreneurs

As we head towards the end of the year, many entrepreneurs are thinking about the upcoming tax season. While paying taxes is inevitable for every business owner, there are some tips that can save you money, and make tax time easier on you. We’ve put together some of our best tips and tricks to help ensure that your business has the most successful tax season possible.

Proper Business Formation

First and foremost, take a look at how your business is formed. Are you an S-Corporation, an LLC, or a C-Corporation? Many companies who are formed as an LLC might be better off becoming one of the other two types of corporation, since a corporation receives certain tax benefits. There are many factors to consider as you decide on which formation is best for your business. If you are a small business, it’s possible that an LLC might be the best option, as often corporations can be subject to double taxation. The best way to determine which business formation is right for you is to speak with a business attorney or your tax professional.

Tax Tips for an LLC

As an LLC, you benefit from being able to reduce your personal liability in your business, but you are still taxed as an individual. If you are a multi-member LLC, the IRS will view you as a partnership. If you are a single member LLC, you will file taxes as a sole-proprietor, but the benefit in this type of organization is that your liability in the company is restricted to your investments in the business. This is important, because your personal assets are not considered as business property. As an LLC, you have the ability to determine how your business is taxed, and since you don’t offer stock, you can avoid time-consuming shareholder meetings. There are annual fees associated with becoming an LLC, and it might make sense to become an S-Corp or C-Corp if you find limitations in the structure. It’s best to speak with a business lawyer or your tax advisor if you’re looking to change your business structure to an LLC.

Tax Tips for an S-Corporation

If you are formed as an S-Corporation, you’ll want to pay attention to the tax formalities that are associated with this type of organization. An S corporation can be beneficial in terms of tax status because you will no longer have to pay taxes on profits at the corporate level, since each amount of profit is passed to the shareholder to report on their taxes. You will want to be aware of the 100 shareholder limit that applies to S-Corporations. One important tax tip to take note of as a business owner is that if you distribute your business earnings as dividends instead of salary in order to minimize the income reported on your W-2, it could get you in trouble with the IRS if the salary you draw is not reasonable compensation. When in doubt, discuss your strategies with a savvy tax advisor who can help you make sure you’re reporting income properly.

Tax Tips for a C-Corporation

As a C-Corporation you will want to pay special attention to your tax deductions. There are some deductions that many business owners might not be aware of, such as mileage deductions, reimbursed business expenses, and possible business tax credits. If you are a C-Corporation then you probably know that your income can sometimes be subject to double taxation. This happens because money is first taxed as business income, and then is taxed again after money is paid to shareholders as dividends. This is not always as bad as it sounds. If you plan to keep more money in your business as profit, rather than taking it out of the business, a C-Corporation may be a wise choice since in this scenario, your tax bill would actually be reduced. Just be careful with any applicable accumulated earnings tax.

Make the Most of Charitable Giving

Charitable giving is a tax benefit available for all business formations. When it comes to charitable giving, one beneficial way to enhance your tax benefits while also doing a good deed is to use a donor advised fund. By using a donor advised fund you can save on administrative fees and are able to take a greater deduction on your taxes. This type of fund allows you to take the tax deduction in the year that the funds are placed in the account, but you are free to distribute the funds at any time. If you are interested in learning more about setting up a donor advised fund, you should check with your financial planner who can help you through the process.

Get Help From Professionals

One of the best ways to make sure you save money on taxes is by having the right help by your side. Whether you need a tax advisor to help make sure you’re taking all proper deductions and reporting income correctly, a business attorney who can help you with your business formation, or a financial planner who can help you make sure you have the right investment options to minimize your tax liability-such as having a retirement plan in place– finding good help is one of the best ways to ensure that you are maximizing potential savings in your business.   

If you need help creating a financial plan for your business, feel free to reach out to us at 954.424.1660 and we’d be happy to discuss the financial health and future of your business so you can keep doing great work for many years to come.

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