All small businesses are required to pay income taxes on all earnings made throughout any given tax year regardless of business type. Sole proprietorships, limited liability companies and incorporated businesses all have this requirement. However, all business types have one other thing in common: they all may use the same legal tax-avoidance methods to reduce the amount of taxes paid at the end of the tax year. Tax regulations permit such avoidance through the use of deductions and write-offs.
Maintain records of all inventory purchased and sold throughout the year as a "base figure" to use when performing write-offs. The total inventory figure desired here is the total wholesale (your original cost) value of all goods purchased by your business throughout the year, which was destined for resale.
Maintain a running total of all damaged and returned merchandise throughout the entire tax year, which had to be disposed of due to being inoperable, unsafe or defective. The total monetary value of all these undesirable items can be used by a tax accountant as a business loss, known as a "write-off." Such write-off can be used as tax obligation offsets due to the loss they incurred against the income of the business.
Store all receipts for purchase when buying items needed to run the business, placing them in file folders for use on tax day. Tax laws permit businesses to deduct costs of doing business from the total tax obligation. Totals for purchases of staples, computer equipment, point-of-sale terminals, pens and pencils, filing cabinets and office equipment can all be totaled together and then deducted from the amount of taxes owed at the end of the year. The total for all of these costs of doing business can be included as part of your standard business deduction offset against taxes owed.
Donate a percentage of excess income to charitable organizations that are incorporated under the IRS code 501(c)(3). This is known as the "nonprofit" tax filing structure used by charities and other nonprofit organizations. All who donate to these recognized charities can also deduct that amount from taxes owed at the end of the year. Using charitable donations along with standard tax deductions and business loss write-offs, it is possible to reduce or even eliminate the need to pay taxes at the end of the business year.
Operate a fuel and mileage logbook for all travel done while conducting business. A certified public accountant can use such a logbook to take advantage of current tax laws related to deductions of fuel expenses from the total amount of taxes owed by your small business.
Tips & Warnings
- File tax documentation at the end of the year. Absolute refusal to at least file is regarded by the Internal Revenue Service as tax evasion. Contrary to tax avoidance, tax evasion is a criminal punishable offense, which can result in fines, interest and even imprisonment.
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