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If you want to reduce your small-business taxes, you need to do a little planning well ahead of tax season.
While maximizing business deductions and keeping meticulous records of all business expenses are the most obvious ways to minimize your small-business taxes, these other five ways can lessen the tax pain come spring:
1. Hire family. The small-business tax code is friendly toward family enterprises. You won’t have to pay federal unemployment taxes to family members that work for you. You may also not have to withhold income taxes or Social Security for any employees that are your children, depending on the wages you pay them. Before you try and reap the tax rewards of running a family business, make sure that you understand child labor laws, pay reasonable wages and know that to comply, family members’ work must be relevant to running your company.
2. Use independent contractors. Hiring independent contractors or freelancers frees you from having to withhold payroll taxes. Make sure that you know the rules of using independent contractors first — or hire an accountant who does — or you could be subject to back taxes and fines.
3. Be generous. Before you get rid of anything in your office that is in good shape, consider giving it to charity instead. You’ll be helping a worthy cause, plus you’ll be able to claim the gift on your small-business tax return. Just make sure that the charity that’s receiving any equipment or money is qualified to receive tax-deductible donations.
4. Pay those bills. As you get closer to the end of the year, get out your checkbook to pay your January bills in December. You will be glad you did come mid-April, when you can deduct those expenses.
5. Buy now. If you desperately need a new computer system in November, don’t hobble along until January to make the purchase — and risk having to make expensive repairs to the old system. You’ll save more in small-business taxes by making the purchase right away, plus you’ll reap the rewards of a new system that won’t interrupt your small business operation.