Four Business Tax Breaks You Can Take Advantage of Right Now

Business tax breaks are legal ways to reduce your business's tax liability. They're particularly useful for small businesses that don't have the time or resources to do a lot of tax planning but can still benefit from the extra money in their pockets. Some tax breaks are easier to identify than others. Individuals or companies use breaks to move money and assets to avoid paying taxes. For example, an American corporation moving offices and factories overseas could be doing so to save money on U.S. taxes.

In order to make sure that you're not breaking any laws, you have to make sure that whatever break you're taking is legal — tax evasion is fraud! Luckily, there are several legal tax breaks you can take advantage of today!

What Is a Tax Loophole or Break? 

A tax loophole is a tax law provision or a shortcoming of legislation that allows individuals and companies to lower tax liability. Loopholes are legal and allow income or assets to be moved with the purpose of avoiding taxes.

Loopholes/breaks exist for individuals, non-profits, and corporations alike in the USA. A common example is when an individual or company chooses to donate money to a non-profit entity that supports their cause. The donation is tax deductible at the full value of what was donated, which means that the taxpayer gets a deduction on their income tax return equal to the amount they donated.

For businesses, however, there are a few tax breaks you might not know about, which we will break down here. 

S Corp vs An LLC

If you run a business, you probably know that the way you structure it can have a huge impact. If you're an LLC taxed as a sole proprietorship or partnership, you'll pay self-employment taxes. But if your business is taxed as an S-Corp, you'll only pay payroll taxes.

If you're an entrepreneur who's been considering making the move from sole proprietorship or partnership to S-Corp status, now is the time to do it! The tax savings could be huge — and it's an easy way to save money!

Keeping Track of Your Deductible Expenses

You may not think it, but you could be spending more money than you realize on deductible expenses. And while it's hard to keep track of all your expenses all year long, we've got some tips to help you out! 

First, ensure you're keeping track of all your expenses. You may not think that paying for a Netflix subscription is deductible, but if you use it for work-related purposes, then yes, it is! 

You can also deduct the cost of transportation if you use your car for business purposes, including gas and maintenance costs. If you have an office in your home (and therefore don't have to pay rent), then any utilities related to that space are also tax-deductible. 

If you're working from home and don't have a separate office space, then making sure to take care of any cleaning or maintenance tasks needed can also help reduce your taxable income at the end of the year. 

The best thing to do is keep track of all your expenses throughout the year, and then make sure to declare them when tax season comes around. If you have any questions about whether something is deductible or not, consult with an accountant—they'll know better than anyone!

Offer a Retirement Plan for Employees

Did you know that if you offer a retirement plan to your employees, you can save on taxes? That's right — you can save money on taxes by offering a qualified retirement plan to your employees.

Regarding retirement accounts, there are two main types: defined contribution plans and IRAs. A defined contribution plan is a type of account that pays an employee a specific amount at the end of each year. These plans include 401(k)s or 403(b)s. An IRA stands for Individual Retirement Account, and is an account that an individual sets up on their own with a bank or financial institution to fund their retirement savings.

Take Advantage of Special Tax Credit Programs

There’s also specialty tax programs out there that can save your business tens and even hundreds of thousands of dollars. We've got the inside scoop on two of them: the R&D Tax Credit and the Employee Retention Credit under the CARES Act.

The R&D Tax Credit (26 U.S. Code §41), also known as the Research and Experimentation (R&E) tax credit, is a federal benefit which provides businesses with dollar-for-dollar cash savings for operations relevant to the growth, design, or improvement of their products, procedures, methodologies, or operating systems.

The Employee Retention Credit is another awesome tax benefit that businesses affected by COVID-19 can take advantage of. The ERC was established under the CARES Act, and helps employers keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer. 

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Talk to your accountant on which tax breaks your business might be eligible for. We at TaxTaker, specialize in R&D Tax Credits and the Employee Retention Tax Credits and can help your business save tens of thousands of dollars each year. If you are interested in capitalizing on these tax breaks, sign up now!

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