From keeping up with your tax credits to providing uncommon benefits, here are eight answers to the question, “What are ways a business owner can reduce their taxable income?”
- Claim Tax Credits
- Write Off Depreciating Assets
- Reinvest Earned Money in Your Employees
- Understand and Leverage Deductions and Credits
- Use Earnings to Grow Your Business
- Make Contributions to a Retirement Account
- Sign Up for Courses or Programs
- Offer Unique Benefit Packages
Claim Tax Credits
Business owners can claim tax credits for certain expenses, such as hiring veterans or investing in renewable energy. Tax credits reduce the amount of tax owed, which can lower a business’s taxable income.
To claim a tax credit, the business owner must meet certain requirements and file the forms with the tax authority. The amount of the tax credit depends on the specific credit being claimed and the number of eligible expenses incurred by the business. The tax authority sets limits on the amount of some tax credits that can be claimed while they refund the excess amount to the business owner if the credit exceeds the amount of tax owed.
Joe Flanagan, Founder, 90s Fashion World
Write Off Depreciating Assets
If you’ve been working in the same business for a long time, chances are you’ve accumulated a lot of assets that have depreciated. Business owners can write off depreciation on a lot of things, including everything from office supplies to a home office.
You can also write off your vehicle expenses, travel expenses, and even your phone bill. By taking advantage of these write-offs, you can reduce your taxable income by thousands of dollars every year.
Matthew Ramirez, CEO, Paraphrase Tool
Reinvest Earned Money in Your Employees
Sometimes the simplest solutions are also the best. Employee salaries and any bonuses are tax deductible provided they’re paid out in the current tax year, are reasonable and not out of the ordinary, and paid for documented work. What it means is that reinvesting the money you earned into your team will benefit the employees and reduce your tax burden.
Natalia Brzezinska, Marketing and Outreach Manager, PhotoAiD
Understand and Leverage Deductions and Credits
A business owner can reduce their taxable income by taking advantage of deductions and credits. These include deductions for business expenses, such as office supplies, advertising costs, employee salaries, and travel expenses.
There are tax credits available in certain circumstances that may provide a significant reduction in the amount of taxes owed. To ensure maximum benefit, it’s important to understand which deductions and credits are available, as well as properly document them.
By understanding and leveraging deductions, credits, retirement plans, and tax strategies.
Aviad Faruz, CEO, FARUZO
Use Earnings to Grow Your Business
One effective way for business owners to reduce their taxable income is by reinvesting it back into their business. By using earnings to fund new projects, purchase equipment, or expand operations, business owners can lower their taxable income while also fueling growth and future success.
This strategy not only benefits the business financially but also helps to attract new investors, improve customer satisfaction, and create new job opportunities. So, rather than simply paying taxes, reinvesting in your business can lead to long-term prosperity and financial stability.
Basana Saha, Founder and Editor, KidsCareIdeas
Make Contributions to a Retirement Account
One strategy that a business owner can use to reduce their taxable income is to make contributions to a retirement account, such as a 401 (k) or IRA. By contributing to a retirement account, a business owner can reduce their taxable income by the amount of the contribution, up to certain limits set by the IRS.
This can help lower the amount of taxes owed and increase the amount of money available for retirement savings. Also, contributing to a retirement account can provide other benefits, such as tax-deferred growth on investments, which can help the account grow.
Overall, making contributions to a retirement account is an effective way for business owners to reduce their taxable income while also planning for their future financial security.
Ben Basic, CMO, Get It Cleaned
Sign Up for Courses or Programs
Not only are courses or programs related to your business tax deductible, but if you choose the right ones, you’ll get a strong return on your investment so that the expense actually earns you far more money than the course or program cost. To get the best return, consider topics related to sales, marketing, or productivity.
Laurel Robbins, Founder, Monkeys and Mountains
Offer Unique Benefit Packages
Providing employees with access to membership for activities like movie theaters or museum visits, as well as financial guidance, would not be traditional benefits, but might provide tax deductions because of being classified as working condition fringe benefits. These uncommon benefits qualify for income tax exclusions, which can significantly reduce the taxable income for businesses in certain circumstances.
Julia Kelly, Managing Partner, Rigits