Whenever it is time to pay taxes, businesses start looking for ways they could save money while also maximizing deductions and credits. A commonly overlooked thing by small business owners, which could save a lot during tax time, is keeping track of receipts. You need to round up all those loose receipts that are lying around the desk, in your car, or purse. A simple receipt for something like a lunch or dinner you had with a client related to the business may be money you are losing through taxes. In case, you don’t account for that expense, you pay more. All cash transactions need to be tracked and recorded. Here are five ways small businesses can save on their tax filing.
Ensure you file income tax returns
When you miss the deadline of filing for tax returns, you may be in for a late filing penalty. The penalty entails at least five percent of the balance that you owe on returns. It also features a one percent penalty of unpaid tax for each month that has lapsed before you file the returns up to a period of 12 months. Each month you are late to file your returns is attracting penalties, which takes away the money you could have brought back to your business.
Tax rate disparities can at times increase the amount you pay. Using the tax splitting strategy, you may be able to save some money. In the event that your income is higher, it means you will have more marginal tax rate. You may want to transfer part of your income to another person such as your child or spouse, as this reduces marginal tax rate, which is associated with higher incomes.
Track all your expenses
A big mistake small business owners make is that they don’t even differentiate a business lunch and personal lunch. Some bills they pay may seem as personal but they are actually business expenses. In order to avoid scrambling to find the receipts at the last minute, file them or track them using a reliable tool. You can even have a separate credit card designed for your business, which separates your personal expenses from business expenses for easy recording and filing.
Check tax credits and deductions
You can save on taxes by looking at all eligible tax credits. You may want to ensure that all lunch or dinner expenses you had are taken into account as part of the expenses when you file returns. This also include other costs like license, gas, and registration where a personal car serves as business car.
Work out non-capital losses
Sometimes, the expenses may be more than income, something that is considered non-capital loss. These kinds of losses can be used to make up for other income in a tax year. They can be carried back for a period of three years. They may also be taken forward for a period of up to seven years.
Instead of using the non-capital loss in the year the loss happened, you may consider taking it back to recover income tax that you already paid. It would also make sense if you carried it forward to allow you compensate for a huge tax bill you are likely to pay in future.
When you smartly apply these tax saving tips, you may end up taking back a considerable amount of money that could otherwise have been lost. A number of small businesses overpay their taxes because they overlook things like tax deductions. Other entrepreneurs aren’t even aware of any deductions they can pursue. When the businesses do not keep track of expense records or they fail to itemize their expenses, they are losing money in form of tax payments. Some simply don’t want to indulge themselves in the complex number crunching. All these are habits that can cost the small business owners a lot of money.