Tax advice for small employers is essential because you may live or die by your taxes. Taxes on money received over the year might reduce your profit margins by up to 25% or more. Paying your tax on time can put additional income and help your company appear more profitable on paper. So mentioned below are the best tax tips for small employers:-
Maintain accurate records
Begin by maintaining meticulous records of your finances. You would like to understand what taxes you’ll be responsible for and when they’ll be payable.
You may owe the following taxes, depending on your business:
- Employment taxes
- Estimated taxes
- Excise duty
- Taxation on earnings
- Tax on self-employment
It’s crucial to keep good records. For example, in an illustration on small business taxes, we previously said that “1 out of every four small enterprises lose sight about whether or not a client has paid throughout the year. You must also keep track of your revenues, monitor cash flow, and preserve records of payroll and other payments in addition to accounts receivable and collections.
Recruit family members
This tax-saving tip is the most helpful and might save your money while keeping more money in the family. You’ll need to legally employ your children, which involves issuing W-2s and registering them for applicable state taxes. Once hired, you can pay the regular salary without paying FICA and FUTA contributions. However, federal and state income taxes will still be due.
Separate accounts for business and personal use
The Internal Revenue Service is always on the lookout for small firms that aren’t paying their taxes. If you’re audited, one of the first things they’ll do is look at your business and personal accounts to see if there’s any commingling.
Increase your marketing budget
If you’re utilising traditional marketing methods, it’s time to switch to digital marketing, which allows you to reach out to more potential clients and increase your chances of finding new customers. It will also save you money in the long run because marketing costs are tax-deductible. As a result, increasing the marketing budget is a good idea.
Utility Services for Businesses
Utility Service charges can be claimed as utility expenses by business owners who use their automobiles and phones. For example, spending on phones, cars, parking fees, and driver’s salaries is all claimable if used only for business purposes. You can deduct your power costs if you own and operate a house. It will aid in the reduction of tax burdens. Some of the business utility expenditures that can be claimed as deductions include:
- Preliminary costs: All expenses incurred before creating the business are deductible under Section 35D of the Internal Revenue Code. These are reported as initial costs for five years and are deductible from taxable income.
- Convenience expenses: If you frequently use your car or phone for work purposes, these costs are deducted as business expenses on your tax return.
- Regular expenses: If you run your business from home, you can deduct your power costs as a ‘head of the company’s expense. Additionally, you can deduct expenses related to your internet connection, as well as your rent.
Depreciation of all capital costs is also deductible under the ‘income of company’ section of the tax code. To lower your tax liability, you must make capital expenditures from the company’s account and claim depreciation.
Medical insurance payments up to Rs 25,000 can be claimed as tax deductions under Section 80D of the Income Tax Act, 1961. It can include your spouse, children, and parents. This does not apply if you are running a business while also working full-time at a job that offers medical insurance.
Deduct tax correctly at the source
The Income Tax Act has particular provisions that allow entrepreneurs who purchase a service or product to deduct tax at source when making payments to the vendor. If a person fails to do so, the costs will not be deductible, resulting in an extra tax burden. For example, if you pay a commission to an agent of Rs 3,00,000 but fail to deduct the tax at the rate of 10%, the entire amount of Rs 3,00,000 would be disallowed for calculating the taxable profit.
Donating money provides you with the gratification of doing a good deed and tax benefits. To avoid paying taxes on your gifts, you must give funds to recognised organisations+, such as PM’s relief fund. You can also claim tax benefits by donating to a recognised political party.
Loan for a House
If you feel that buying a property with a bank loan is not a long-term investment, you are incorrect. It is a long-term investment that may grow significantly over time and offers tax advantages. If you have connected your PAN with the firm, you can claim tax deductions of up to Rs 1,50,000 per year under Section 80C of the Income Tax Act.
Manufacturing companies are eligible for significant tax breaks. Companies that install new equipment and machinery throughout a year can claim up to 20% extra depreciation on top of the normal amortisation in the year they were put in use (under Section 35AD).
For example, if you bought new gear and claimed conventional depreciation of 15% but not enhanced amortisation of 20%, you’ll have to pay taxes on the 20% you didn’t claim.
Transactions on the Internet
It’s not a good idea to pay your employees in cash in this day and age when everything is done online. Furthermore, you will be placed on the income tax department’s red list. If you pay an individual in cash for more than Rs 20,000 in a single transaction, your account books will not allow it.
For example, if you pay a worker more than Rs 20,000 in cash in a single day, the income tax agency will consider the transaction worthless. As a result, your taxability rises. As a result, paying your employees by bank transfer is always a good idea.
A rupee gained is equal to a rupee saved. When multiple tax-saving provisions exist, it is only prudent to use them. Implementing tax-cutting strategies will pay you in the long term.
When should small businesses pay taxes?
Your tax-free personal allowance as a lone trader is £12,500. You won’t have to pay any income tax if you earn less than that. You’ll pay a standard 20% income tax rate if your firm makes between £12,501 and £50,000. You’ll pay 40% of your earnings are between £50,001 and £150,000. Businesses with a taxable income of £150,000 or more are subject to a 45 per cent rate.
In East London, you may consult a tax accountant for accountancy and tax preparation, which may be time-consuming and difficult. But it doesn’t have to be that way any longer.
Working with a local accountant who can give you real-time to view your business, notify your liabilities and dues, how to claim your profits and from where you can claim the profits.
As well as handling HMRC compliance and tax planning for you could be a money-saving decision.
With over 50 years of combined expertise in all areas of financial administration, 123Financials helps businesses in East London to stabilise their operations, reduce tax bills, and implement time-tested development plans.