Tax avoidance is the process of taking advantage of gaps in the government’s legislation to pay less tax. This is one of the reasons why businesses often hire CPA and tax consultants to ensure they do it the right way.
Taxes can wear down startup businesses that aren’t aware of how the tax processes work. It is the same case for large corporations as they are required to pay large amounts of taxes.
But how do businesses and corporations manage to legally “cheat” their way through the tax system?
Getting some of their employees from family members
Most CPA consultants indicate that hiring family members is an effective way of reducing tax obligations. For instance, the Federal Unemployment Tax, Social Security, and Medicare taxes on a child’s salary are not imposed on sole proprietor businesses. Similarly, spouses who are in business together also have a reprieve from the tax obligations of the Federal Unemployment Tax Act.
Taking advantage of the accelerated depreciation tax break
The greatest corporate tax incentive is accelerated depreciation. This option allows corporations to deduct asset costs faster than their value drops. It’s important to know that taxation on U.S. corporations is on their net income, which is their revenue, less their costs.
For large cost amounts such as the purchase of equipment and buildings, accelerated depreciation allows the companies to deduct them from accumulated profits for several years.
Adopting a retirement plan
When you run a small company, you forfeit the benefits of an employer’s matching 401(k) contributions. However, there are several retirement alternatives that may help you save for the future while also reaping significant tax advantages.
For instance, the IRS has a one-participant 401(k) plan. Here, you can contribute as much as $57,000, a non-taxable amount for retirement.
You can check out the IRS website for retirement plans that act as tax-saving techniques for small business owners.
Tax credits
The goal of tax credits is to promote activities that are beneficial for the welfare of society. One of such activities that the government promotes is paying for a child’s education expenses.
To illustrate, let’s assume you were to pay a tax of $400. However, you also report that your company or business has been paying schools fees for some children amounting to $400. In such a case, the government wipes out your tax obligation.
