Small team tax tips: 5 money-saving strategies

Shiloh Johnson
By Shiloh Johnson

As a business grows, tax burdens can also increase. Fortunately, the IRS offers opportunities to save money, through applicable deductions and credits. With these five tips, your business can take advantage of money-saving practices even as you add to your team.

As your business grows, hiring employees can keep daily operations running smoothly — and keep you focused on building your business toward the future. Roughly 19% of small businesses have paid employees with the average startup employing about four people. While having a small team can be crucial for the growth and success of your business, it also comes with additional challenges and stresses — like having to regularly pay people other than yourself.  

To eliminate tax headaches down the line, it’s important to set good practices in place even while your team is small. Setting up solid recordkeeping and organized accounting paperwork can also help you maximize your tax benefits as much as possible. If you’re a small business owner with a small team, here are five tax tips to check out.

#1 - Take advantage of the Work Opportunity Tax Credit 

Utilizing a tax credit may mean putting more money back in your pocket. Fortunately, the IRS offers several opportunities that can save you money if your business qualifies under certain conditions.

For example, if you have expanded your team or are thinking about expanding soon, consider taking advantage of the Work Opportunity Tax Credit. This tax credit is an incentive for businesses to hire from groups that have faced significant barriers to employment, and in return for offering opportunities to these groups, businesses can earn a tax credit. 

For example, if you hire a veteran or someone who has been unemployed for a while, you may qualify for the Work Opportunity Tax Credit. 

#2 - Maximize the healthcare credit 

If your team has fewer than 25 employees and provides healthcare benefits, you’ll want to get the most out of your small business healthcare credit. According to the IRS website, “The amount of the credit you receive works on a sliding scale. The smaller the employer, the bigger the credit.”

Even if you don’t owe anything this year, you may still be in luck. The IRS website offers some good news: “Even if your small business does not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.” 

To get started, use Form 8941 to figure out the credit for the health care premiums. 

| Utilizing a tax credit may mean putting money back in your pocket. 

#3 - Look at Section 179

Under Section 179, the IRS makes provisions for assets that have depreciated in value. Businesses may be able to recover the cost of business or income-producing property with deductions for depreciation. 

Often you’ll be able to deduct certain assets up to the full amount in the year you purchased the item. For example, you may be able to deduct property related to manufacturing, off-the-shelf computer software, business facilities, and more. 

There are various rules and stipulations, so check out your eligibility. But if possible, this is something you don’t want to miss out on. 

#4 - Utilize tax-advantaged retirement accounts 

You may be able to contribute to a solo 401(k) or SEP-IRA and lower your taxable income. Contributing to one of these accounts allows you to save for your future while also saving money on taxes today. 

If you offer retirement plans to your employees, you also may be able to save on payroll taxes as they can lower wages that are considered part of the Federal Unemployment Tax Act. 

#5 - Carryback or carryforward 

If you had a net operating loss (NOL), not all is lost. You can take advantage of an accounting technique called a carryback or carryforward. 

A loss carryback is when a business chooses to apply a loss to a prior year’s tax return, which results in an immediate refund of prior taxes paid. A carryforward essentially spreads out a loss over subsequent years’ net operating income, as a way to reduce future tax liability. Most businesses apply losses through the carryback method to avoid losing dollar value (such as through inflation periods) and maintain their buying power. 

Take action early to manage tax-time

If you have a small team, it can be tough managing your tax responsibilities, balancing the budget, and keeping your business afloat. However, understanding which available tax credits and incentives are available to you early on can help you take advantage of opportunities to reduce your tax liabilities and save money. 

Keeping organized records and accurate accounting can save you headaches at tax time, and platforms like ComplYant can help you keep track of deadlines and stay up-to-date with your taxes. With some planning, you can save a lot of money on your taxes and get the most out of your small business. 

Shiloh Johnson
By Shiloh Johnson
Shiloh Johnson is a long-time CPA and founder of ComplYant, a technology platform offering business owners and entrepreneurs a simple way to manage tax rules and requirements.

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