All business can be interpreted through profit and loss, and one of the main losses of any business is – taxes. Taxes are a necessity in any modern society as they fund public welfare and the state’s machinery. Many would argue that taxes are often unjustly distributed and too complex to get a hang of it, something that is often true but is beside the point of this text.
Any business owner will want to maximize their profits while remaining within the boundaries of the law. The first and foremost way of doing this is by minimizing your taxes, something that is manageable but very difficult if you are not versed in the matter. Luckily for us, experienced entrepreneurs have gone over this process many times over and have devised several ways to decrease their taxes while still not having to cut corners by lowering workers’ pays or registering off-shore companies.
Separate Personal from Business Expenses
We are reminded ever so often not to mix business and personal. Well, this holds in terms of expenses too. While it may seem easy to just use everything you have at your disposal for your in-home office or handicraft production, it is better if you know exactly what is for what and how much you use it.
We can name several tips to make this easier:
- Open a separate bank account or business credit card
- Buy separate business items
- Write down how much is an asset used for business and personal reasons
All of this is needed because anything used directly for business can be interpreted as a business expense and, therefore, can be a deductible business expense. If, for example, you use your car to deliver products to customers, but you also use that car to drive around or go to the store, you can calculate how much time the vehicle is in use for business and have a deductible for that fraction of its taxes.
Keep Track of Your Bookkeeping
Another dull yet much-needed practice is bookkeeping. All the possible in’s and out’s of your business should be written down there and should offer you an accessible and easy way of managing your business taxes of course, in this digital era, we no longer need to write anything down on paper but have apps that can store and calculate the numbers for us.
This job used to be reserved for specially educated accountants, but with the rise of small businesses (that are often composed of only one or few people), the job has shifted to the owner. And as many of us have no proper education in accounting – apps developed for this can be a real lifesaver. As an owner, make sure you have a tax preparation checklist for your small business to make sure that you choose the right format and include all information. With proper bookkeeping, you can plan your company’s move in advance much more carefully as you have the statistics to guide you in what actions require more or fewer taxes to be paid.
Deduct As Much As Possible
Different countries have different laws concerning this matter, but either way, most of them state that you may lower your (personal or business) tax liability by lowering your taxable income. This practice is known as a tax deduction and should be used wherever possible.
A deduction can be almost any expense that the taxpayer made during the fiscal year that can be subtracted from their gross income. The government may change the regulations from year to year, to how much a certain type of expense is deductible, and that is something you should keep an eye on if you already don’t have an accountant to do that for you.
A good example is travel expenses as any travel that is considerably longer than your normal working commute is classified as business travel and most expenses related to that can be deducted. Gas, lodging, and extra allowance for workers are all almost always deductible, but for example, gifts to bring back to your spouse from the trip are not as they are not business-related expenses. There are a plethora of other deductibles too, that can significantly lower your taxes if you apply for them. New machinery, medical expenses, business meetings in restaurants, etc.
Tax management is a skill that is seldom taught in business schools but is greatly needed in real life. Most new business owners will be faced with the challenge of finding out how to do it themselves, and considering how tight the starting budget for most companies can be – it is a lesson worth learning in advance. So don’t shy away from asking those more experienced for help, as we are all doing business in good spirit and can only benefit from a more profitable working environment.