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If you own or are thinking about starting a small business, then you are aware of all the dangers and expenses involved in doing so. Indeed, it's important to save as much as you can wherever you can in order to ensure the longevity of your business. Here are some little known legal loopholes that you may be able to benefit from by implementing them into your business.
First of all, it's important to know what kind of business is being run. This may seem like a silly statement, but the legal entity under which the business is listed will make a huge difference in how it is treated when it comes to taxes. Not all businesses are subject to the same Tax Code. As such, it's important to know whether the business is a corporation, a partnership, a Limited Liability Company - known as an LLC - or a sole proprietorship.
The type of listing you have for your business will determine the amount of taxes you need to pay. If you have a corporation, consider whether listing it as an 'S' Corporation will work in your benefit, as opposed to having a 'C' Corporation. 'S' Corporations often have less taxes to pay due to the way the arrangement works with the IRS. Consequently, if you currently own a sole proprietorship or partnership business, you should strongly consider changing it to form a corporation so that you can reap these benefits.
If you want to save big on taxes, then you should begin paying yourself a real salary instead of taking whatever profit the business makes. As an employee rendering services in your business, you can receive an FMV, which is Fair Market Value wages for your services. This helps you to avoid paying excessive amounts in payroll tax by overpaying yourself in profits.
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.
Yet another reason to make a small business into an 'S' Corporation is that business owners can make deductions on losses. As a 'C' Corporation, a business may have to carry losses forward to the first year of experiencing a profit. This can be quite difficult and trying for new businesses, as running a small business can often run into financial trouble long before any profit is made and, of course, end in failure.
Hiring your children can actually be a great way to avoid certain taxes. Of course, they must be of age and they must be employable with all the necessary skills to be able to work in the business. However, keeping it in the family will help reduce the amount of payroll taxes you have as children are allowed a certain amount of wages tax-free every year.
Finally, plan business trips with the added benefit of a vacation by extending the trip for a few days. In this manner, business trips can be tax deductible and count as business expenses, but owners are able to enjoy some relaxation time in the same bracket. Savings on travel expenses will undoubtedly help small businesses in the long run when done correctly.
First of all, it's important to know what kind of business is being run. This may seem like a silly statement, but the legal entity under which the business is listed will make a huge difference in how it is treated when it comes to taxes. Not all businesses are subject to the same Tax Code. As such, it's important to know whether the business is a corporation, a partnership, a Limited Liability Company - known as an LLC - or a sole proprietorship.
The type of listing you have for your business will determine the amount of taxes you need to pay. If you have a corporation, consider whether listing it as an 'S' Corporation will work in your benefit, as opposed to having a 'C' Corporation. 'S' Corporations often have less taxes to pay due to the way the arrangement works with the IRS. Consequently, if you currently own a sole proprietorship or partnership business, you should strongly consider changing it to form a corporation so that you can reap these benefits.
If you want to save big on taxes, then you should begin paying yourself a real salary instead of taking whatever profit the business makes. As an employee rendering services in your business, you can receive an FMV, which is Fair Market Value wages for your services. This helps you to avoid paying excessive amounts in payroll tax by overpaying yourself in profits.
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.
Yet another reason to make a small business into an 'S' Corporation is that business owners can make deductions on losses. As a 'C' Corporation, a business may have to carry losses forward to the first year of experiencing a profit. This can be quite difficult and trying for new businesses, as running a small business can often run into financial trouble long before any profit is made and, of course, end in failure.
Hiring your children can actually be a great way to avoid certain taxes. Of course, they must be of age and they must be employable with all the necessary skills to be able to work in the business. However, keeping it in the family will help reduce the amount of payroll taxes you have as children are allowed a certain amount of wages tax-free every year.
Finally, plan business trips with the added benefit of a vacation by extending the trip for a few days. In this manner, business trips can be tax deductible and count as business expenses, but owners are able to enjoy some relaxation time in the same bracket. Savings on travel expenses will undoubtedly help small businesses in the long run when done correctly.
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