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A New Dawn in Taxation for Entrepreneurs
Amid the challenges of owning and managing a business, entrepreneurs face the overwhelming complexity of taxation. However, with adequate knowledge and strategic planning, entrepreneurs can utilize taxation to their advantage. At DeFreitas & Minsky LLP, we have witnessed numerous instances of tax triumphs for business developers, transforming what seems like an insurmountable hurdle into remarkable victories.
Deciphering Tax Obligations for Entrepreneurs
An entrepreneurial tax triumph begins with a proper understanding of tax mandates. While tax laws are continually evolving, an entrepreneur should remain keen to the business tax basics. The Internal Revenue Service (IRS) imposes income taxes, self-employment taxes, and possibly employment taxes on entrepreneurs1. It is vital to understand what these encompass to recognize the tax deductions and credits available that contribute to significant tax wins for entrepreneurs.
The Power of Tax Deductions and Credits
Tax deductions and credits are the secret arsenal for entrepreneurial tax victories. Deductions decrease the income you’re taxed on, while credits reduce your tax. For instance, the home office deduction allows entrepreneurs to deduct certain costs if they use part of their home for business2. Other potential deductions are vehicle expenses, travel costs, and professional development opportunities. Notably, the Qualified Business Income (QBI) deduction is a lifeline for small businesses, offering a 20% tax deduction2.
Tax Wins in Making Smart Business Decisions
• Leverage Section 179: Many entrepreneurs may overlook Section 179 of the IRS Code, which can be a significant win. This provision allows businesses to expense the full value of qualifying equipment and machinery in the year they were purchased and used rather than depreciate these costs over time3.
• Employing Family Members: Implementing a comprehensive family employment strategy could result in considerable tax savings. When you hire your children under the age of 18, their salary becomes a tax deduction, reducing your taxable business income.
• Setting Up Retirement Plans: Retirement plans can lead to significant tax savings. As an entrepreneur, setting up a solo 401k or Simplified Employee Pension IRA allows you to contribute much larger amounts than traditional IRAs, leading to significant tax savings4.
Outsourcing Accounting and Tax Management
Outsourcing tax management to professional accountants like DeFreitas & Minsky LLP is another uplifting tax victory for entrepreneurs. Our team of certified experts employs effective strategies to manage your tax obligations, freeing your time and energy to focus on business growth. Additionally, we ensure you’re exploiting tax provisions to your benefit, like the R&D tax credit that statistically, only one out of twenty companies eligible for this credit take advantage of5.
Navigating Tax Pitfalls and Avoiding Audits
Another tax triumph for entrepreneurs is successfully avoiding the dreaded audit. An audit can be a nightmare — it consumes time, money, and can even tarnish your reputation. While the IRS only audits about 0.6% of all returns, the factor that most triggers an audit is the differential income — the difference between what you report and what third parties report6.
Looking Ahead: The Future of Entrepreneurial Taxation
Venturing ahead, numerous tax provisions could lead to significant tax triumphs for entrepreneurs. For example, The Tax Cuts and Jobs Act offers potential advantages. Despite understandable concerns about its impacts, there are positives, including a lower tax rate for corporations and provisions that can boost deductions on new business equipment7.
While the landscape of taxation is overwhelming, the tax triumphs for entrepreneurs continue to increase. Leverage this opportunity by equipping yourself with the right knowledge and implementing intelligent tax strategies with the help of experienced accountants like DeFreitas & Minsky LLP.
Sources
1 IRS
3 IRS
7 CNBC
