Tax season can be stressful for everyone and especially hard on a small business owner. Small businesses work so hard to make a profit that the last thing one would be interested in is paying more money than necessary to the government in the form of taxes. Luckily, small business owners can reduce tax liability and keep more of what they earn for themselves.
Employ a Professional
While it is certainly not necessary to do so, especially if you are good at calculations and the like, there are two good indicators of whether or not you need to enlist the services of a professional. First, determine if it would cost more to hire one, and second, would you be paying more tax in the future? If yes, then a professional could help you plan better.
Properly Structure your Business
A properly structured business just might be one of the most overlooked aspects in tax planning. As they grow and expand, small businesses need to change the structure of their business. For example structuring your company as a C corporation instead of an S corporation or an LLC. While those structures work well, there are more tax advantages to a C corporation.
Pay regularly into a retirement plan
From a profitable business, you can comfortably shelter income in a qualified retirement plan. Your payments will provide tax deductions, defer tax on earnings from the plan. The deferred tax however will be paid when you start to use the money after retirement.
Claim Capital Allowances
Capital allowances can be claimed on items purchased which are directly related to your business such as machinery or vehicles. Their value can be deducted from your profit before taxes.
Pay Staff Benefits instead of Pay Raise
Another way to minimise tax is to offer compensations to staff. For instance, rather than pay certain amount in cash, you could pay more into the covering insurance costs. This way you avoid paying taxes on the increments.
Remove Travel Costs
If your business entails a lot of travel around the UK, you can reduce taxes by deducting travel costs. You can also combine business and pleasure trips to enjoy the same benefits.
Employ a Family Member
Employing a child, spouse or other family member is a great way small business owners can minimise tax. Using this strategy, taxes are reduced because a lower marginal rate is paid, and tax on income paid to children can be totally eliminated.
Deduct Household Expenses
Working from home in the UK as a small business owner means you can deduct household expenses like mortgage, insurance and utilities as business expenses to save on taxes.