Business tax? Yuck. Not happy with your tax refund this year? Didn’t even get a refund? No worries. That’s why we are going to cover how to reduce your business taxes each year forward! First things first…
Girl boss, business expenses are not the answer.
I use to think making big business purchases, such as buying a new laptop, was a good way to lower my business taxes. But then I soon realized that it was not sustainable in the long run. It caused a never ending cycle of unnecessary business purchases.
Theses days, before making any major business expense, I ask myself if I really need it to grow the business. The last thing I want it to do is make “avoid paying taxes” the driver behind my purchases.
Not too long ago, I started Not A Bond Girl to sustain my lifestyle doing what I love. This means making enough money to support my monthly living expenses. I’m very grateful to be in an ideal situation where my extra profits can be used to expand my business and plan for the future.
Maybe you are in an in-between phase where you are running your biz as a side hustle while still working the 9-5. Maybe you have a goal of being a full-time entrepreneur within the next year.
Or perhaps you are in-between the two worlds. From personal experience, there are definitely pros and cons of being a part-time entrepreneur while having a part-time job.
Where ever you fall on the spectrum of entrepreneur, I’m guessing you are a girl boss at heart if you are reading this post. So let’s get to some of the details of how to reduce your business taxes and become a more money savvy girl boss.
Business vs hobby.
Girl bosses, if you have not turned a profit in at least three of the prior five years, the IRS can categorize your business as a hobby. If the IRS considers your business a hobby, it would prevent you from claiming a loss related to your business.
There are some exceptions to this rule. Nonetheless, there are better ways to lower your taxable income without increasing your expenses at the end of the year.
If you have “extra” money at the end of the year and want to do something with it besides rack up more expenses or pay the government taxes on the profits, then consider the following three strategies.
1. Contribute to your retirement.
Does your employer offer a retirement plan like a 401K, 403B or SIMPLE IRA? Do they offer a company match? In Corporate America, I use to max my 401K contributions each year. If your company offers a match, try to contribute as much as possible to at least get the full match.
If you are a full-time small business owner, you may consider contributing to a SEP IRA, solo 401k or a SIMPLE IRA. All of these plans are great options for lowering your taxable income while saving for your (and your employees’) futures.
Select a SEP IRA if you are a small business owner who wishes to make a tax deductible contribution into an IRA for yourself and on behalf of your employees.
Select a SIMPLE IRA if you are a business owner with a workplace of 100 or less employees and will fund the bulk of their retirement. Choose a solo 401K if it’s just you.
2. Contribute to a health savings account.
I max out my HSA each year for various reasons. If you’ve ever experienced medical bills, you know how important it is to have an emergency fund dedicated solely to medical expenses.
If you have a high-deductible medical plan, you may have the option to contribute to an HSA. The unused contributions can roll over indefinitely and grow tax-free.
Some financial freedom warriors like to use their HSA an additional retirement account. If you don’t want to touch your HSA contributions, then you can pay for your medical bills out of pocket.
Your HSA would then be able to compound tax-free over time. When you turn 65 or are disabled, the IRS allows you to withdraw the HSA money penalty-free.
3. Get your learn on.
With the ever evolving economy, successful entrepreneurs are lifelong learners. If you took time throughout the year to learn a new skill, you may be eligible for the Lifetime Learning Credit.
The Lifetime Learning Credit is worth a maximum of $2,000 per year, and helps pay for college and educational expenses that improve your job skills.
An eligible educational institution is any college, university, vocational school, or other post-secondary educational institution eligible to participate in a student aid program administered by the US Department of Education.
Bonus: Get the biggest tax refund possible by talking to my CPA Amy Northard!
Tax prep? Bookkeeping? When April approaches each year, I sleep easily knowing that my CPA Amy Northard has already ensured I received the biggest tax refund possible.
Her prices are great for the amount of time and money I save each year! You can check out her latest tax and bookkeeping tips or get in touch with Amy herself here!
Take the stress out of every tax season.
Over the years of running a blog biz, it’s not always easy to be on top of all my business finances. Especially with the constant changes in tax regulations. I was floundering my first tax season and I swore never again to put myself under that much unnecessary stress.
Since then, I’ve been working with a Certified Public Accountant. As mentioned, her name is Amy Northard and I’ve sharing all the great biz finance tips I’ve learned from her throughout my blog.
Amy is a business owner herself! She works with creative entrepreneurs to make taxes and bookkeeping less stressful.
If you need to understand the ins-and-outs of your business financials. Bookkeeping and taxes are not optional. But you’re in luck!
Amy has saved me hours each year on business taxes and bookkeeping! If you are interested in getting support on your biz finances, let's get started...