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Decrease taxes owed with these tips!

By Business of Baking Blog posted 01-04-2024 12:00:44 AM

  

I bet when you started your business, you did it because of the love of baking. Am I right? Most entrepreneurs don’t go into business so that they can worry about taxes. Yet, here we are every year working to pull together receipts and figuring out ways to reduce how much we owe Uncle Sam. Like it or not, when you have a small business you have to stay in the know about the tax laws that impact your business. Of course, having an accounting process for your business helps, but you should also consider the tax implications as you make purchases and other business decisions throughout the year. This is called tax planning. 

If you don’t have an accountant, I highly recommend that you get one! A good tax accountant can help you develop a strategy for maintaining business expenses, filing receipts, making tax saving investments, and other tips for running your business in the most tax efficient way possible. The goal is to find ways to reduce your tax liability which is the amount of money that you owe to the government.

Of course, working with an accountant is the best move. However, here are a few little known methods that you can use to reduce your annual tax liability:

Reconsider Your Support Staff.

Hiring employees can be expensive especially when you consider benefits and payroll taxes. However, have you considered hiring independent contractors or outside vendors to do the same work? If members of your team aren’t on payroll, you will avoid paying payroll taxes. Of course, the IRS has certain requirements when it comes to classifying a staff member as an independent contractor, but when you know the rules there are ways to work within the system.

Bring the work “in-house,” literally.

Family members can also be staff. Paying your children to take care of appropriate duties within your business can help shift some of your income to the expense side and reduce your tax liability. Of course, the recipient (aka your child) may have their own taxes to pay from that income, but that’s another conversation for another day.

Shift your expenses forward.

If your business’ accounting records use the cash basis method, then you can spend money in advance and you can reduce your tax liability in the current year instead of waiting until the next year to reap the benefits. In the most simple terms, your tax liability is based on your income. The lower your income the less money you’ll have to pay to the government. With that said, as a business owner, you can reduce your income by spending some of it on expenses. Therefore, as you get closer to the end of the year, if you need to reduce your tax liability you should make strategic purchases. Buying new equipment, ordering supplies in advance and pre-paying certain bills & utilities are all ways of reducing your tax liability.

Don’t forget the fees & interest.

We all know that it takes money to run a business, but don’t forget that business expenses extend beyond butter, flour and eggs in our industry. Remember licensing fees, business taxes, and annual memberships to businesses related organizations are all deductible expenses. The same goes for interest paid on borrowings for running the business and insurance premiums paid to insure parts of the business. 

Talk to an accountant.

As I mentioned earlier, working with an accountant is a smart move when it comes to business especially, if you don’t have experience with accounting. Your books can run on one of two accounting systems, cash basis or accrual basis. Each accounting method has its own benefits. However, make sure you talk to an accountant and get a clear understanding before you start making any changes to the ways you run the financial side of your business.

Cyd N. Mitchell
Business Blogger, Retail Bakers of America

Cydni N. Mitchell (aka Cyd) is a Bakery Consultant and the Sweet Business Coach behind Sweet Fest®. Based in Atlanta, GA, Sweet Fest® is an online company that supports the business needs of the Sweet Community in the areas of professional development, marketing, branding and web design.

By trade, Cyd is an accountant & financial analyst with a Masters from the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. She is the Founder of the Sugar Coin Academy, an online business academy for business owners in the baking and sweets industry, and she is also the organizer of The Ultimate Sugar Show, Georgia’s Largest Annual Baking and Sweets Expo in Atlanta. She is also the Business Blogger for the Retail Bakers of America.