How Small Business Owners Save on Taxes
By forming your own business, you may be able to lower your taxable income. Plus, you gain the flexibility to decide exactly how you want to file your tax return. In addition to be taxed as an S Corp., an LLC can choose to file as a sole proprietor or partnership to continue claiming your earnings as an individual or you can petition to file as a corporation for even more options.
There are many tax benefits that corporations may qualify for.
- Potential tax savings based on your income bracket. Corporations are taxed at different rates than individuals.
- Depending on your level of income, your earnings may be taxed at a lower rate for your business than they would be if claimed by you as an individual.
- The option to pay yourself a fair salary, which can be deducted from your taxable earnings as a business expense.
You can also deduct the cost of doing business.
- Operating a small business allows you to write off various expenses such as work computers, relevant software, employee salaries and even your internet and phone bills.
- You can formally lease your own personal assets to your business to deduct the costs from your taxable income. This can include anything from property for an office space to a company car.
- In many cases, you can even deduct the cost of forming your LLC. (Certain rules and restrictions apply. You can only deduct up to a $5,000 for this purpose).
Protect your assets.
There are several additional benefits to forming a business and lowering how much you pay in taxes is just the beginning. Properly utilizing a business entity can also help provide personal liability and asset protection. This added layer of protection is why it’s called a Limited Liability Company.
This is not intended to be legal or tax advice. Please contact an attorney or tax professional for any legal or tax advice and assistance.