Your taxes directly impact your bottom line. Saving on taxes is essential for small business owners because it allows for increased profitability and reinvestment in the business.
By minimizing tax liabilities through strategic planning and compliance with tax laws, small businesses can retain more of their earnings and enhance financial stability.
Below we’ve listed the three most important things to focus on when seeking ways to save on your taxes as a Minnesota small business owner. Before that, however, let’s start with a quick lesson on the difference between tax deductions and credits.
A tax deduction reduces your taxable income, which in turn lowers the amount of income subject to taxation, while a tax credit directly reduces the amount of tax you owe, providing a dollar-for-dollar reduction in your tax bill. Tax deductions are based on eligible expenses and impact the portion of your income subject to taxation, whereas tax credits are incentives for specific actions and provide a more substantial financial benefit by directly reducing the final amount of taxes owed.
Ways to Save on Small Business Taxes
1. Pay attention to the latest tax credits
Tax credits are always changing, which can make keeping up with the latest developments challenging. Especially when you’re already busy trying to run and grow a business.
It’s essential, though — any small business owner looking for ways to save on their taxes has to be a small business owner who is well-informed. If you don’t have the time to stay on top of the latest credits yourself, it’s never a bad idea to seek out a little professional tax planning help.
That said, here are a few credits and deductions that all small business owners should know about:
- Work Opportunity Credit (Form 5884) — The Work Opportunity Tax Credit benefits small businesses by providing tax incentives for hiring individuals from specific target groups, including but not limited to veterans and ex-felons. It offers a way for small business owners to save on their taxes by hiring from a diverse talent pool while contributing to the economic well-being of underprivileged groups.
- Research & Development Tax Credit (Form 6765) — This credit allows eligible companies to offset a portion of their research and development expenses against their federal tax liability. This credit supports innovation, job creation and competitiveness, helping small businesses stay at the forefront of their industries while lowering their overall tax burden.
- Disabled Access Credit (Form 8826) — The Disabled Access Credit benefits small businesses by offering a tax credit for expenses related to making their facilities more accessible to individuals with disabilities. This credit helps cover the costs of complying with the Americans with Disabilities Act (ADA) and enhances accessibility for customers and employees.
- Credit for Small-Business Health Insurance Premiums (Form 8941) — This credit eases the financial burden of offering healthcare benefits, making it more affordable for small businesses to provide valuable coverage to their employees. By lowering healthcare costs, this credit helps retain and attract talent, enhance employee well-being, and can lead to increased job satisfaction and loyalty among your team.
2. Don’t miss out on deductions
There are so many things that small business owners can submit as tax deductions when looking for ways to save. A list of common tax deductions includes business-related travel expenses, rent or lease payments, relevant supplies and equipment, insurance premiums, marketing and advertising costs, utilities, repairs and maintenance of business property, cost of goods sold, charitable contributions and more.
The best way to know which deductions your small business qualifies for? Ask the pros.
Consult with tax experts
Hiring a business accounting firm is a smart and strategic move for small business owners looking to optimize tax savings. Expert accountants possess in-depth knowledge of tax laws and regulations, helping business owners navigate complex tax codes while identifying opportunities for deductions, credits and incentives that might be overlooked without expert help.
They can also provide guidance on choosing the right tax strategies and business structures that align with your ultimate goals so you can minimize liability and maximize return. A professional business accounting firm will help you avoid costly errors, reduce risk of audits and ensure full compliance with tax laws. By partnering with experts, small business owners can save on taxes, streamline financial processes and focus on what they do best: finding new ways to grow.
3. Keep meticulous records
Meticulous financial record-keeping is an indispensable practice for small business owners looking for ways to save on their taxes. Accurate records make it a lot easier to claim every deduction you’re eligible for, which can significantly lower your taxable income. They also provide a clear overview of your financial situation, allowing for strategic decisions that maximize tax benefits.
Additionally, well-maintained records demonstrate compliance with tax regulations, reducing the risk of audits and penalties. Whether it’s tracking expenses, documenting deductions or substantiating business activities — meticulous financial records empower you to navigate the complex tax landscape, minimize liability and improve your bottom line.
Another benefit of good record-keeping is that when you do partner with a business accounting firm to make sure you’re maximizing deductions — they’ll have everything they need to help you save!
Corneliuson & Associates has been helping Minnesota small business owners save year round for over 25 years. Book your no-cost, no-obligation consultation today.