Practical Tax Saving Strategies for Your eCommerce Business
As we all know, there are only two things in this world that are truly inevitable, death and taxes. There really isn’t much anybody can do about both, so thinking that these can be avoided is futile. However, you can, at least, make the experience a great deal easier and as pain-free as possible, especially when it comes to taxes.
Now, a good accounting firm can advise you accordingly in these matters, so such a service would definitely come in handy when you are still in the process of setting up a small eCommerce business. You can, of course, make your life a lot more difficult by doing it all yourself. But really, why would anyone want to do that?
Truly, whatever costs you might save by doing your own accounting will not be worth the time, effort, energy, and the hassle that you will go through trying to learn the ins and outs of taxation and other aspects of your business’ finances. So save yourself the trouble by hiring a good accounting firm to help you deal with the financial aspects of your online business, especially with your taxes as the IRS is not to be trifled with.
Here are some practical tax saving measures that a good accounting firm will be able to advise you on and help you implement:
Start a 401(k) retirement plan for your employees.
Now, the general thinking among small businesses is that their respective companies are too small to offer a 401(k) retirement investment plan for their employees. But the truth of the matter is even a sole proprietorship can already offer such a plan. Plan members can contribute up to $16,000 per year of income that is tax-deferred ($22,000 for those over the age of 50). And by simply setting up a 401(k) retirement plan for your employees, you already get to enjoy a whopping $500 tax credit for three years.
Of course, setting up such a scheme means extra requirements and regulations to follow. A good accounting company will be able to take care of a lot of the legwork, as well as make sure that your computations are correct and your payments are made on time.
Have a flexible spending account (FSA).
You will be glad to know that funds that are deposited to your own and your employees’ flexible spending accounts or FSA will not be charged with payroll tax. Not only that, FSAs can be used towards eligible medical expenses for up to $2,500 per year. This then makes it a great alternative to health insurance, if your eCommerce company does not offer an all-inclusive health plan. FSAs can also be used to cover childcare expenses of up to $5,000 and other such dependent costs.
Pay salaries to your family members.
Note that a person can earn up to a certain amount per year without having to pay federal tax. This is a particularly useful provision to take advantage of. You can simply pay a family member to render services to your company for up to this amount, so he or she will not have to pay taxes, while at the same time, you and the business itself can claim a deduction.
Make use of travel expenses.
You can actually claim deductions for travel. This can be as much as $0.50 per mile. Not only that, but you can also enjoy deductions for parking and toll fees.
Take advantage of repair expenses.
You will be happy to know that while capital improvements are not deductible, repairs are. This covers repairs for equipment, furniture, and other items used in the day-to-day operations of your business. The best way to reduce your tax liability through repairs is by making the repairs before the year ends. Make sure also to keep these repairs separate from capital improvements, so as to avoid confusion and for you to be able to justify them easily.
Invest in new equipment.
By law, both new and used equipment and software are eligible for an enhanced Section 179 deduction. Not only that, brand new software and equipment also enjoy a 50% bonus depreciation deduction.
Manage your shareholder loans wisely.
If you have lent personal funds to your eCommerce company, you have to consider charging interest on these loans. This will help you keep the company’s taxable income well below the small business threshold. This way, you will be able to keep the tax rate down significantly.
Cancel bad debts.
You need to be able to keep detailed records of your efforts to collect from delinquent clients who owe you money. If by the end of the year you are still unable to collect from these people, you can already declare the amount as a bad business debt and enjoy a deduction for it.
Get health care.
Currently, small businesses cover as much as 50% of their employees’ health care plans. With this, you can already claim a deduction of up to 35% on the premiums paid for the year.
Hire new employees.
Under the HIRE Act, you can enjoy a 6.2% payroll tax exemption for wages by simply hiring workers who have been previously unemployed.
Have some fun!
You may be surprised to know this, but 50% of meal and entertainment expenses are deductible, as long as they occur as part of a business undertaking. Not only that, parties are 100% deductible, as long as all employees are invited to participate.
Offer Employee Stock Ownership Plans (ESOP).
Get your company privately valuated, and reward employees with partial ownership! Not only is this a great motivator, but ESOP stock contributions are also tax deductible and enjoys numerous tax incentives.
By simply starting your eCommerce business, you can enjoy a deduction of up to $10,000 on your startup expenses. This can already include pre-opening expenses like market research, advertising, training, consulting, and so much more.
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