Starting a business can be a daunting and expensive experience. For small business owners, every penny counts, especially in the beginning stages of starting the business and getting all the legal paperwork in order. These little known legal loopholes can go a long way in helping small business owners to save quite a bit of money in the process, which is always a good thing.
For starters, what kind of business do you own? It may be a silly question, but you should pay careful consideration to the legal entity under which you list your business as it may make the world of difference when it comes to paying taxes. While all businesses are subject to taxes, it is not equal across the board. Keep this in mind when having your business listed as a corporation, LLC (Limited Liability Company), a partnership or a sole proprietorship.
Knowing which bracket the business falls into will then clarify the amount of taxes the owner will have to pay. If a business is a corporation, then listing it as an 'S' Corporation as opposed to a 'C' Corporation will mean that much less taxes need to be paid because of the structure of the arrangement with the IRS. Furthermore, it is strongly recommended that Sole Proprietorship or Partnership businesses be formed into Corporations for this very purpose.
Receiving actual wages instead of taking profits from the business is also a big way that owners of small businesses can save money. This is because of the deduction on payroll taxes once an employee of the business is receiving Fair Market Value salary. Otherwise called FMV, this is what is considered a reasonable amount of wages for services rendered as an employee.
Any excess profit then becomes a dividend to be paid out that is not actually subject to any payroll tax. This is another advantage of having 'S' Corporation status. Other business types would be subject to at least 15% taxes on business profits, regardless of any Fair Market Value wages that may be in place.
As an 'S' Corporation business, you will be able to get tax deductions on losses. However, if you have a 'C' Corporation, you may have to carry those losses forward into the first year that the company experiences any profit. This could become an issue as owning a small business is quite a struggle and many have to close before ever seeing a profit.
Another very good way to save money when running a small business is to hire family members, namely children who are old enough to work. They will, of course, need to receive fair pay for their services, but by keeping the business in the family, it can get a deduction every year in taxes. This is due to each child being allowed a certain threshold of income completely tax-free.
A final loophole to help you save money in your business is to plan vacations as part of business trips. This is easy to do by simply extending the length of the trip by a few days so that you can relax after taking care of business. This way, you do not have to pay additional expenses for travel and you can deduct travel expenses as a business expense.
For starters, what kind of business do you own? It may be a silly question, but you should pay careful consideration to the legal entity under which you list your business as it may make the world of difference when it comes to paying taxes. While all businesses are subject to taxes, it is not equal across the board. Keep this in mind when having your business listed as a corporation, LLC (Limited Liability Company), a partnership or a sole proprietorship.
Knowing which bracket the business falls into will then clarify the amount of taxes the owner will have to pay. If a business is a corporation, then listing it as an 'S' Corporation as opposed to a 'C' Corporation will mean that much less taxes need to be paid because of the structure of the arrangement with the IRS. Furthermore, it is strongly recommended that Sole Proprietorship or Partnership businesses be formed into Corporations for this very purpose.
Receiving actual wages instead of taking profits from the business is also a big way that owners of small businesses can save money. This is because of the deduction on payroll taxes once an employee of the business is receiving Fair Market Value salary. Otherwise called FMV, this is what is considered a reasonable amount of wages for services rendered as an employee.
Any excess profit then becomes a dividend to be paid out that is not actually subject to any payroll tax. This is another advantage of having 'S' Corporation status. Other business types would be subject to at least 15% taxes on business profits, regardless of any Fair Market Value wages that may be in place.
As an 'S' Corporation business, you will be able to get tax deductions on losses. However, if you have a 'C' Corporation, you may have to carry those losses forward into the first year that the company experiences any profit. This could become an issue as owning a small business is quite a struggle and many have to close before ever seeing a profit.
Another very good way to save money when running a small business is to hire family members, namely children who are old enough to work. They will, of course, need to receive fair pay for their services, but by keeping the business in the family, it can get a deduction every year in taxes. This is due to each child being allowed a certain threshold of income completely tax-free.
A final loophole to help you save money in your business is to plan vacations as part of business trips. This is easy to do by simply extending the length of the trip by a few days so that you can relax after taking care of business. This way, you do not have to pay additional expenses for travel and you can deduct travel expenses as a business expense.
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