Are You Paying Too Much Tax?
Every business and every business owner owes taxes. Sporadic is a business that can reduce its tax bill to a negligible status, and those cases tend to be on the controversial side, as well, to put it lightly. That said, if you feel like you are paying too much in taxes or owe more than you can pay, there are ways to deal with it. Here, we will examine what you can do to reduce your tax burden.
Put more into retirement
One of the best ways to reduce your tax burden is to use the money your business earns better. This way, you might not strictly be keeping the money you would otherwise be paying to the taxman, but you can better enjoy the benefits of it in your business.
For instance, retirement is a significant aim for most workers, and those businesses that do more to help their employees secure their retirements may expect better retention and motivation as a result. By establishing a 401(k) plan for your employees, you can avoid paying taxes while working to be a better boss for them. You can create a pension plan for yourself, allowing you to save all of your income as an employee contribution up to the limit. Of course, it’s best to work with a tax professional to ensure that you’re doing it to the letter of the law.
Claiming income as a tax deduction
If you are reporting your business’s income on your tax return, you might be able to make a qualified business income deduction. This can allow you to deduct a significant portion of qualified business income from your taxes.
There are specific things that count as qualified business income, such as income, gains, expenses, and losses, that are expected within the natural process of doing business, but it doesn’t include things like capital gains or losses or dividends. You will want to check with a business professional to see what you can claim as a qualified business income deduction.
Challenging your tax return
If the IRS has responded to a tax return with the decision that you owe more than you think, you can appeal this decision. Usually, this happens in the event of an audit, but you can appeal how much you owe in taxes and any penalties that you might owe. There are some cases in which it’s too late for an appeal, such as if you have already signed an agreement that you owe the IRS some taxes, so once again, check with your tax professional before deciding that an appeal is the correct course of action.
Handle it when you owe too much
In some cases, you may owe too much, but an appeal might not necessarily be the right course of action. The IRS might be correct in how much you owe, but it may simply be too much for you to be able to pay them back. When that happens, the assistance of a tax attorney is vital to help you agree with the IRS.
For instance, you can make a settlement with the IRS that is called an offer in compromise, which allows you to limit how much tax you have to pay them while ensuring that you are following the law. It can help you avoid the endless tide of tax penalties and interest, and the IRS is usually amenable to finding a way to recoup some of the money owed if they can’t get it all back.
Are you paying too much tax: consider changing your structure
Sometimes, it’s not specifically the finances of the business that will be the single biggest contributing factor to your taxes, but how those finances are managed as a matter of its structure. There are a variety of business structures you should consider, such as a sole proprietorship, partnership, limited liability company, and more.
Some, such as a sole proprietorship, have income taxed personally through the owner, while organizations such as an LLC are taxed on a corporate level. Depending on your state, these structures can offer different advantages, so do your research, preferably with the help of an accountant or tax lawyer.
Whatever decisions you’re making regarding your taxes, you should ensure that you’re doing it within the confines of the law, and the help of the right tax professionals can be vital for that reason. Don’t make any mistakes alone.