With the tax season right around the corner, most businesses and individuals are preparing to file tax returns and taking stock of their profits, losses, and income. For small businesses, all these are included in personal tax returns based on the salaries of their owner/owners. Small businesses are single-member LLC owners and sole proprietors and their taxes are filed under Schedule C along with Form 1040.

For individuals, the highest tax rate is 39.6%.

This depends on an individual’s income, and a small business will have to pay taxes on this percentage. Adding local and state taxes, small business taxes will go up to nearly 50%. This is quite a high percentage of tax a small business will pay when compared to a corporation who would be paying at the tax rate of around 35%. With their limited scale and profits, small businesses may have to incur high taxes unnecessarily. Here are a few simple ways to save on small business taxes.

• Use tax-free methods to save on taxes : By utilizing tax-free benefits such as retirement plans and medical coverage that is offered to employees, it is possible to save on small business taxes. It is also possible to save on small business taxes on loans taken on a zero or low-interest basis. Businesses have to report loan interests that are below IRS-set rates; however, due to the prevailing low-interest rates, loans do not cost too much.
• Use accountable plans : An accountable plan is a plan used by employers to reimburse employees for their miscellaneous costs such as entertainment and travel. Such accountable plans are in accordance with the requirements of IRS. Accountable plans let a small business to deduct this cost from the total expenditure and not include in the total employee income. This lowers the total taxable income of the business and saves employment taxes of the company. Accountable plans help not only employers but also employees to save on taxes.
• Use carryover deductions : Based on their taxes, small businesses can be eligible for credits and deductions based on their taxes. Since certain limitations are imposed on such credits, a business cannot utilize these credits completely in a current financial year. Such credits and deductions can be carried over to the consecutive financial years. It is essential to keep track of such credits and deductions that are carried over to the next financial year. This can help in using the benefits of such carryovers. Such carryovers are usually earned through capital losses, general business credits, charitable contribution deductions, home office deductions, and net operating losses.