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.
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.
Another way to save big on taxes is for business owners to pay themselves an actual salary as opposed to simply taking the business profits for themselves. This is known as Fair Market Value, or FMV. By paying a reasonable wage for services rendered as an employee of the business, owners can actually avoid having to pay large amounts of payroll taxes.
The remaining profit after FMV is then labelled as a dividend that is paid out. This dividend does not actually become subject to payroll tax. This, however, can only happen in an 'S' Corporation, as other business models would be subject to fifteen percent or more taxes on profits in the business, whether FMV is in place or not.
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.
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.
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.
Another way to save big on taxes is for business owners to pay themselves an actual salary as opposed to simply taking the business profits for themselves. This is known as Fair Market Value, or FMV. By paying a reasonable wage for services rendered as an employee of the business, owners can actually avoid having to pay large amounts of payroll taxes.
The remaining profit after FMV is then labelled as a dividend that is paid out. This dividend does not actually become subject to payroll tax. This, however, can only happen in an 'S' Corporation, as other business models would be subject to fifteen percent or more taxes on profits in the business, whether FMV is in place or not.
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.
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.
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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