Tax season is not a time any taxpayer particularly relishes, and small-business owners are among those that can have a difficult time planning. However, with proper planning entrepreneurs can ensure tax time is a little less burdensome.
1. Hire Family Members
You won't need to pay federal unemployment taxes if you hire your spouse or parents, and you may not have to withhold income taxes and Social Security if your children work for you. You must still follow child labor laws, pay reasonable wages and make sure that the work benefits your company to qualify for these exemptions.
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2. Hire Independent Contractors
By hiring independent contractors you won't need to withhold federal or state income taxes from their earnings, nor will you have to pay the employer’s share of Social Security and Medicare taxes or provide unemployment benefits. Just make sure that the IRS doesn't consider your contractor an employee, or you'll have to pay back taxes and fines. Seek the advice of a tax professional before you classify someone as an independent contractor.
3. Maximize Deductions
One way of maximizing deductions is keeping excellent records and receipts. Here are some key categories to consider for write-offs: start-up costs; office expenses; furniture; education; travel; insurance; memberships; and conferences.
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4. Pay Your Bills by Year's End
If your business-related bills (rent, phone, electricity, etc.) are due in early January but cover expenses incurred in the previous year, pull out the checkbook before the New Year. All of those expenses can help reduce your tax burden in mid-April.
5. Purchase What You Need – Now
You may be waiting for a tad more revenue to trickle in before you replace your old computer or buy supplies. It's s smarter to invest in your business now rather than waiting for the New Year and get some of that investment back in deductions that could return you money next year.