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.
To begin with, it's really crucial that the business is registered as the right kind of legal entity. Sadly, not all businesses are subject to equal taxes. As such, being listed as a corporation can make a huge difference as opposed to being listed as a partnership, sole proprietorship or a Limited Liability Company (LLC).
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.
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 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.
Last but not least is the issue of vacation time. Instead of taking separate vacations, small business owners should try and work a few extra days into business trips. This way, travel expenses become deductible as part of business spending, while allowing time for rest and relaxation without having to spend any more.
To begin with, it's really crucial that the business is registered as the right kind of legal entity. Sadly, not all businesses are subject to equal taxes. As such, being listed as a corporation can make a huge difference as opposed to being listed as a partnership, sole proprietorship or a Limited Liability Company (LLC).
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.
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 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.
Last but not least is the issue of vacation time. Instead of taking separate vacations, small business owners should try and work a few extra days into business trips. This way, travel expenses become deductible as part of business spending, while allowing time for rest and relaxation without having to spend any more.
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