While tax season can be stressful for many people, it can be especially challenging for new small and midsize businesses.
"Developing a strong relationship with a knowledgeable tax adviser is essential," says Margaret Reed, professor-educator of accounting, Carl H. Lindner College of Business, University of Cincinnati. "The more you educate yourself, the easier it is to keep yourself and your business in the best position to save taxes and comply with the law."
Whether you are an individual, a new startup or a seasoned and successful business, you can stay ahead of the game by engaging in tax planning. This allows you to take advantage of any tax law changes which might reduce your overall tax bill and maximize your returns.
- Know your bracket. Tax brackets change annually to adjust for inflation. Based on your marital status, family size and income, know your marginal tax rate for each new year.
- Increase your deductions. Tax deductions can be a substantial help, which include business expenses and investments in equipment and employee salaries and some personal and investment deductions (itemized deductions like real estate, personal property taxes, any interest paid on business or home mortgage, or charitable donations, if they exceed the standard deduction).
- Consider your corporate structure. Weigh the advantages of taking on a partner and transitioning from a single-member LLC to a partnership or an S-corporation.
- Be prepared and ready for audits. Be sure to retain the original receipts (not just the credit card receipt) for deductible expenses and purchases for at least five years.
- Know the difference between tax deductions and tax credits. Tax credits result in dollar-for-dollar reduction of your overall tax bill instead of tax deductions that only knock a percentage off. Ask your tax adviser what credits you may be eligible for.
- Take advantage of retirement savings options. Business owners who offer and take advantage of an individual retirement account (IRA), a Roth IRA, a 403(b) plan or a Government Thrift Savings Plan reduce the individual's taxable income by an equal amount of what they put into a savings plan each month (up to maximum statutory amounts).
- Use professional help when you need it. A tax accountant can help you employ even more strategies and plan ahead for changing tax laws, including the latest research and development credits or credits for hiring veterans and disabled individuals or any other groups identified by the government facing employment hurdles.
Have you not formed a business yet? If you're a budding entrepreneur, the experts in UC's 1819 Innovation Hub can help you explore possibilities. The Venture Lab helps innovators from idea conception to startup launch, connecting you to knowledge, talent and resources to help launch scalable startups. The team includes UC staff, entrepreneurs in residence, mentors and technical experts.
Learn about the Venture Lab. Learn about the Center for Entrepreneurship at UC.
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