Business Opportunities Weblog

March 10, 2009 by Rich Whittle | 1 Comment

Lacey writes:

What to do to reduce business tax? Would you consider giving me a hand or at least some advice based on your experience?”

Editor’s note: This information is based on the tax system for the United States of America. Business owners should seek professional advice regarding their tax liability.

Tiare Rath over at About.com has some ideas to reduce your small-business tax burden:

1. Hire Family Members:
Uncle Sam is especially friendly to family businesses when it comes to wages. You won’t need to pay federal unemployment taxes if you hire your spouse or parents, and you may not have to withhold income taxes and Social Security if your children work for you.

2. Hire Independent Contractors:
By hiring independent contractors, you won’t need to withhold federal or state income taxes from their earnings, nor will you have to pay the employer’s share of Social Security and Medicare taxes or provide unemployment benefits.

3. Maximize Deductions:
Two ways of maximizing deductions are keeping excellent records and receipts and relying on a tax professional for guidance. Here are some key categories to consider for write-offs: start-up costs; office expenses; furniture; education; travel; insurance; memberships; and conferences.

4. Pay Your Bills by Year’s End:
If your business-related bills (rent, phone, electricity, etc.) are due in early January but cover expenses incurred in the previous year, pull out the checkbook before the start of the New Year. All of those expenses can help reduce your tax burden in mid-April.

5. Give to Charity:
That old computer you just replaced could aid a non-profit organization that can’t afford new equipment while reducing your small business’s tax burden. The IRS gives tax incentives for donations, so take advantage of them. Before making a donation, check to ensure that the charity is qualified and that donations are tax-deductible. The IRS also requires that you have written acknowledgment from the organization for contributions of or valued at upwards of $250.

6. Hire Katrina victims:
The “Work Opportunity Tax Credit” (WOTC) program, which incorporates the “Welfare-to-Work” federal tax credit, are incentives designed to encourage the hiring of individuals from certain groups that have an especially high unemployment rate or other special employment needs, such as veterans, ex-felons and high-risk youth. That credit has been expanded to include persons affected by Hurricane Katrina. Businesses that qualify to participate in the WOTC program can reduce their federal tax liability up to $2,400 per hire.

Photo by Paul Keleher.

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