As a solopreneur and small business owner, you are likely always looking for ways to save money and cut costs. One way to do this is to make sure you are taking advantage of all of the tax breaks and deductions that are available to you.
What Makes a Small Business?
According to the Small Business Administration (SBA), a small business is defined as a business that is independently owned and operated, has a limited number of employees, and generates a limited amount of revenue.
There are different criteria for what qualifies as a small business depending on the industry.
For example, in manufacturing, a small business is typically defined as having less than 500 employees.
In retail, a small business is typically defined as having less than $5 million in annual sales.
This article contains some general information about small business tax, but it is not financial advice.
Always consult a qualified accountant before making a decision which could affect you or your business’s tax liability.
Which Taxes are Payable for a Solopreneur?
As a small business owner, it’s important to be aware of the various taxes you must pay.
The exact names, and amounts payable may vary by country, but here are three of the most common based on USA law:
Income tax: This is the tax you must pay on your business’s profits. The amount you owe will depend on your business’s profit margin and your personal tax bracket.
Self-employment tax: This is a Social Security and Medicare tax for those who are self-employed. The current rate is 15.3%, and you must pay this on any net income from your business.
Payroll tax: If you have employees, you will also be responsible for paying payroll taxes. These include federal and state taxes, as well as Social Security and Medicare taxes. The total payroll tax rate for 2019 is 7.65%.
Estimated taxes: what are they and when are they due?
Did you know that as a small business owner, you may have to pay estimated taxes quarterly?
Here’s what you need to know about estimated taxes and when they’re due.
What are Estimated Taxes?
Estimated taxes are taxes that are not withheld from your paycheck by your employer.
This includes federal income tax, self-employment tax, and any other taxes that may be required by your state.
As a small business owner, it’s important to budget for estimated taxes throughout the year.
This way, you can avoid any penalties or interest charges that may be assessed if you don’t pay enough tax throughout the year.
When Are Estimated Taxes Due?
Estimated taxes are typically due on a quarterly basis.
Ways to reduce your tax bill: deductions, credits, and expenses
Small businesses have a few options for ways to reduce their tax bill.
One way is through deductions, which are expenses that can be written off on your taxes.
This includes things like office supplies and equipment, travel expenses, and marketing costs.
Another way to reduce your tax bill is through credits, which are basically discounts on your taxes.
This could be for things like hiring veterans or investing in energy-saving improvements.
Finally, another way to reduce your taxes is by simply expenses less money overall.
This might mean cutting back on unnecessary costs like entertainment or eating out less often.
Here Are a 6 Tax Tips That Can Help Solopreneurs Save Money:
1. Are you Using the Correct Tax Classification for Your Business?
There are different tax rates for different types of businesses, so you want to make sure you are classified correctly .
For example, sole proprietorships are taxed at a different rate than C-Corporations.
Ask your accountant, or your local tax office for guidance on how your business should be classified.
2. Make Sure you are Maximising the Pension Plan
This is a great way to save money on taxes and put away money for retirement.
Use a pension calculator to help you determine how much money you will need in retirement.
A good rule of thumb is to save 20% of your earnings, but some national tax laws put a cap on the amount you can save before tax.
Be sure to maximise this allowance if possible.
This is a great way to get started on saving and planning for your financial future.
3. Take Advantage of the Home Office Tax Deduction
As you are one of the growing number of people who work from home, you may be able to take advantage of the home office tax deduction.
This deduction can be a big help if you use part of your home for business purposes.
To qualify for the home office deduction, your home office must be used regularly and exclusively for business purposes.
This means that you can’t use the space for anything else, like watching TV or working on your car.
The amount of the deduction depends on the size of your home office.
You can deduct a portion of your mortgage interest, property taxes, and utilities.
The larger your home office, the greater the deduction.
As a self-employed person, you can deduct a portion of your health insurance premiums as well.
This is a great way to save money on taxes if you work from home.
4. Take Advantage of the Mileage Deduction.
If you use your car for business purposes, there is a standard mileage rate that can be used to help reduce the amount of taxes you owe.
5. Keep Good Records of all Expenses, Deductions, and Income Related to Your Business.
As a small business owner, it is important to keep accurate records of all expenses, deductions, and income related to your business.
There are a few different ways to keep track of your business expenses.
You can use a simple spreadsheet to track all of your income and expenses, or you can use accounting software.
Whichever method you choose, make sure that you update it regularly so that your records are accurate.
This will help you when it comes time to file your taxes and avoid any penalties or fines.
6. Make Tax Savings on Business-related Education.
You can deduct from your tax liabilities the cost of courses related to your business, but only if they maintain or improve skills required in your work.
However, you can’t deduct the cost of courses that are part of a degree program unless there is a clear business reason for taking them.
In conclusion, these tax tips can save small businesses a lot of money come tax season.
By taking the time to track expenses and stay organized throughout the year, business owners can avoid overpaying on taxes.
Additionally, knowing which deductions to take advantage of can also help reduce a business’s tax bill.