Reducing the Tax Burden for your Small Business

Even under normal economic circumstances, business owners are looking for ways to cut costs and save money for a rainy day (or year). Or, you might want to gather funds for a capital investment. Whatever the reason, there are quite a few ways you can either use federal tax credits or reduce your company’s taxable income. Below, we have explained four popular ways that businesses are saving money. 

Employ Family Members

Many small businesses are owned and operated by spouses, and these couples know that keeping the company’s lights on is a family affair. It can, however, pay to have your family members earn their keep by working for the family business. A partnership in which both spouses are partners can pay a minor child for legitimate business duties and not have to withhold Social Security and Medicare taxes. Even after a child turns 18, a child of business partners is excused from having Federal Unemployment Tax Act (FUTA) taxes withheld from his or her paycheck. Corporations are not eligible for this tax treatment. 

Federal Solar Tax Credit

This tax credit, which began in 2005, has been extended several times, yet is slated to completely evaporate in 2022 (unless Congress approves another extension). If you install a solar power system, you can deduct up to 26 percent of the installation’s total cost from your 2020 tax bill. In 2021, that amount will decrease to 22 percent, then 10 percent for commercial projects in 2022. You can still claim the 26 percent credit as long as the installation is completed before the end of this year. Solar installations may also provide bonus depreciation that can offset current year (and future) income taxes.  

Rehabilitation, Energy, and Reforestation Investments Credit

Another tax credit that is aimed at helping the environment is the Rehabilitation, Energy, and Reforestation Investments Credit.  Your business can claim this credit if any of its funds were used to rehabilitate or renovate an aged building. Planting trees using business funds is another way to take advantage of this tax credit, as well as tapping into alternative energy sources (like solar or wind). Your business can deduct 10 percent of its expenditures in this category from its tax bill. This credit is capped at $10,000 per year. 

Opportunity Zones

We continue to promote the Opportunity Zone tax incentive as one of the most powerful wealth generation tools ever passed by Congress.  If you have capital gains, are starting a business, or are buying a business, and you can locate in an Opportunity Zone, you can defer taxes, get a 10% reduction when you pay them, and then not pay any capital gains on the new investment in the Opportunity Zone!  For any business that has the potential to double, triple or increase even more in value, this program can allow the business owner to keep more of the profit upon a successful exit. 

Conclusion

Though taxes are usually something to grumble about, the complex federal tax system actually has many ways for you to save money. Many business owners simply don’t have the time to sift through mountains of forms to determine the best way for their companies to save money. Soterian, a business-coaching firm located in Charlotte, has a track record of helping countless entrepreneurs put the money they’ve saved to good use. If you’d like to find out how we can help you, get in touch with us here through our website.

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Soterian

At Soterian, our goal is to help business owners like you think bigger. Bigger than today, bigger than your business, bigger than yourself.

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