How small businesses can use the tax laws to their advantage

Mall business owners have a variety of legal issues to consider while operating their businesses, with tax laws being one of the most critical aspects of the law to actively monitor. Business owners must ensure that their practices fall within the appropriate jurisdictional guidelines for their area, while also ensuring that their tax liability is reasonably reduced; If tax laws are not strictly followed, a business can face serious penalties, including hefty monetary fines or possible imprisonment. Although a small business owner could be in significant legal trouble as a result of a tax law, most do not realize that tax laws can also provide a venue for their business to improve profits by conserving the amount of money spent on taxes. Small businesses have a variety of ways to use the tax laws to reduce their tax liability; The following article will address the top tax issues facing small businesses and guide the owner on how to turn tax hurdles to their advantage.

Each region has its own set of tax laws that govern the financial and legal guidelines of a company, which can alter the way a company conducts business from one area to another. However, there are a variety of common elements that virtually all tax laws have in common, regardless of the current system or region; Most of these items can be a great asset to the small business. A limited liability company is one of the first steps an owner must take when establishing their business. When considering an effective income tax strategy, small businesses will find more flexible guidelines with a limited liability company, as opposed to other forms of incorporation. A business owner who chooses to become a corporation will be forced to list all profits as a source of income; This not only creates a significant, albeit undue, federal tax liability, but will also create a greater tax liability for the company’s state taxing authority. One strategic way for a corporate business owner to reduce his or her tax liability is to create a payout structure for himself through dividends from the company’s stock. If the owner is paid wages from his own corporation, not only does the corporation have a tax liability for wages, but the owner will face another layer of taxes on wages as an employee.

To reduce tax liabilities, capital allowances are a key tax strategy that all business owners should become familiar with and take advantage of. Tax laws allow business owners to offset the cost of large assets needed to operate the business for a specified period of time, which is what tax experts refer to as a capital allowance. The business owner can reduce his annual taxable income, as these expenses become deductible.