If you want to save money in your startup, there is a ton of articles online that give you all kinds of handy hints and tips. They’ll tell you about things like outsourcing your IT support or only hiring freelancers and contractors instead of full-time employees. But, one thing you might have noticed is that few articles online talk about saving money on your tax bills.
When you run a business, you usually have to fill in a tax return and declare all your income and expenditure. The thing is, your local tax office isn’t going to tell you how to save money by filling in those returns in a certain way. Otherwise, they won’t make as much tax revenue from your company!
The following are nine super tax-savings strategies startups of all shapes and sizes need to follow.
1. Accounting software is your friend
Are you still using paper-based ledgers and recording all your income and expense details by hand? If so, you need to bring yourself into the 21st century! Most modern companies these days use some form of accounting software to make tax preparation easier.
They either use the software themselves, or they hire a bookkeeper to do the work for them. Accounting software saves businesses a lot of time and money. Isn’t it about time you started to use some too?
2. Don’t do your tax preparation by yourself
Preparing your tax returns and accounting paperwork by yourself is a false economy. You may think that you’re saving your business lots of money by doing the work, but you’re actually wasting it!
Believe it or not, making use of business tax preparation services is the smarter way of doing things. Sure, you have to pay for them. But, they will usually spot ways to help you reduce your company’s tax liability. Why pay more taxes when you don’t have to?
3. Keep your paperwork in order
It might shock you to learn that even the most forward-thinking businesses are terrible at keeping their invoices and receipts in order! As you can imagine, it can take hours, if not days to sort through them all and search for any missing ones.
As soon as you issue an invoice or receive one, action it and process it immediately. That way, you can keep track of where they are in your filing system without breaking a sweat.
4. Record work-related expenses you incur at home
Here is one area that a surprising amount of entrepreneurs forget about when it comes to lowering their tax liability! The government allows you to put down certain expenses that you incur at home related to your business. Examples include:
- Working from home (utility bills such as heating and lighting);
- Cleaning (washing uniforms, for instance);
- Auto expenses (mileage allowance for personal cars used for business).
It’s worth finding out a list of valid expenses in your location so that you can apply them to your business tax returns.
5. Hire employees on a freelance basis
Thanks to the Internet, it’s easy to find and hire people to work for your business on a freelance or project basis. It offers you a multitude of benefits and advantages over taking on full-time employees.
For a start, you don’t have to pay for all the expenses related to HR costs, such as benefits and pensions. A lot of employment laws don’t apply when using freelancers as they are actually businesses themselves.
Of course, you still have a duty to ensure anyone’s safety at your premises. But, other than that, you’ll find it more flexible to work with freelancers and contractors.
6. File your tax returns electronically
These days you can do almost anything online from checking your bank statements to ordering a pizza! Thanks to advances in technology, companies can file their corporate tax returns on the Internet with ease.
That means you don’t have to fill out any paperwork and send it in the mail, hoping for the best. When you electronically file your tax return, you’ll get an online confirmation that it has been accepted. It saves you time and potentially money (paper returns getting lost in the mail is more common than you think, resulting in fines for some businesses).
7. Make sure you’re trading under the right legal entity
As you will no doubt be aware, one can set up a business under a variety of legal entity options. The right legal structure for your enterprise is essential to saving money on your tax bills. Why? Because some legal structures offer better tax incentives than others!
If you’re not sure which legal entity is right for your needs, it makes sense to consult with an accountant. They will be best placed to give you the advice you need.
8. Donate anything you don’t need
Have you got some old computers or office equipment lying around gathering dust? Perhaps you are storing some old machinery that could get repurposed by charitable organizations?
Instead of just keeping or scrapping them, why not donate them to a charity instead? You might not know it, but you can get tax deductions on any business equipment and machines that you donate!
Find out from your local tax authorities what items are considered as acceptable donations to lower your tax liability.
9. Keep electronic copies of your records
Sure, you might already have a good filing system for all your paperwork. But, have you ever considered scanning them and storing them as image files or PDFs? You might be wondering how that can be an advantage to keeping your tax bills low.
The thing is, if you can access the information you need with ease, you are more likely to have all the records you need at your fingertips. You can access them in seconds and even email them to colleagues or third parties. That way, you won’t have to leave out any expenses because you can’t access the paperwork to go with them!