How to Legally Limit Your Taxes as a Startup
When you start a business, there are a lot of things you will need to manage, and your finances are an area to which you will want to pay particular attention. Obviously, as you get started, you want to maximize your income and limit your spending. But one way many business owners forget can help them manage their funds is by finding legal ways to limit their taxes.
Write Off Expenses
Fortunately, there are many business expenses that you will be able to write off as a startup. It takes a lot to actually run a business, so Fresh Books recommends having tax write offs as a way to help you use your resources while still being able to grow.
One of the most common things businesses will write off is the classic business meal. Anytime you discuss your business with potential investors or even amongst your team over a meal, you can write it off. You can also write off travel expenses, office expenses, and even some utilities like your internet access. It’s worth exploring all the things that can count as tax write offs. It can save you a great deal of money.
Choose the Right Business Structure
The way you structure your business can also have an impact on how you will pay taxes. Commonly, people choose to organize their business as an LLC or limited liability corporation. With an LLC, you separate your personal and business finances and you are not held personally responsible for any liabilities related to your business. But another benefit of an LLC is that there is a tax pass through. This means that your business is not taxed and instead the business owner is, which prevents your business from being doubly taxed. When you create an LLC, you can decide whether you want to function as a C-corp, S-corp, or partnership. According to Freeman Lovell, choosing a C-corp can add layers of tax and regulatory complications. An S-corp will give you a special tax advantage that comes with some tax exemptions.
Increase Certain Benefits
You can decrease the amount you spend on taxes by increasing certain benefits for you and your employees. One example is including a retirement plan. When you create a retirement plan for your business, the IRS allows you to put aside a certain amount of money for this and it limits how much you pay in taxes. Another option is creating a Health Savings Account. According to Investopedia, an HAS will allow you to cover medical expenses in the future and have limited taxes.
Taxes are a necessary part of any business. However, it can be a burden especially when you are starting out. Fortunately, there are many ways you can legally limit the amount of taxes that your business will need to pay, so take advantage of them!
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