Owning a small business comes with its own set of trials and tribulations, and, of course, expenses! Saving wherever possible is a big deal to a small business owner, as every bit counts towards the longevity and success of said venture. The early stages of a business is where the groundwork needs to be laid in a legal sense to prevent any bumps along the way, and there are quite a few little known legal loopholes that small business owners can benefit from when it comes to saving money.
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.
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.
Excess profit is then paid out as a dividend, which is not subject to payroll tax. This can happen easily under 'S' Corporation arrangements. For other business models, even if there is FMV in place, a 15 percent payroll tax is still applicable on profits as well as employee salaries.
'S' Corporation businesses are also able to deduct any losses on personal income tax returns. 'C' Corporation businesses, however, may not be as lucky, and may need to carry forward any such losses to the first year when the business experiences a profit. Considering that many small businesses may have to wait quite some time before experiencing any real profit, this could be quite detrimental and may very well be the deciding factor between a successful venture and a failure.
Hiring one's kids as employees of a small business is another way to save what could be a significant sum in taxes. Once children are old enough to be employable and have the skills required for their role in the business, they are exempt from certain taxes. Therefore, by keeping the business family-oriented, a small business owner can save hundreds or even thousands of dollars per annum.
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.
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.
Excess profit is then paid out as a dividend, which is not subject to payroll tax. This can happen easily under 'S' Corporation arrangements. For other business models, even if there is FMV in place, a 15 percent payroll tax is still applicable on profits as well as employee salaries.
'S' Corporation businesses are also able to deduct any losses on personal income tax returns. 'C' Corporation businesses, however, may not be as lucky, and may need to carry forward any such losses to the first year when the business experiences a profit. Considering that many small businesses may have to wait quite some time before experiencing any real profit, this could be quite detrimental and may very well be the deciding factor between a successful venture and a failure.
Hiring one's kids as employees of a small business is another way to save what could be a significant sum in taxes. Once children are old enough to be employable and have the skills required for their role in the business, they are exempt from certain taxes. Therefore, by keeping the business family-oriented, a small business owner can save hundreds or even thousands of dollars per annum.
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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