Thursday, June 18, 2015

A Guide To Little Known Legal Loopholes For Small Businesses

By Marjorie Richards


Starting a business can be a daunting and expensive experience. For small business owners, every penny counts, especially in the beginning stages of starting the business and getting all the legal paperwork in order. These little known legal loopholes can go a long way in helping small business owners to save quite a bit of money in the process, which is always a good thing.

For starters, what kind of business do you own? It may be a silly question, but you should pay careful consideration to the legal entity under which you list your business as it may make the world of difference when it comes to paying taxes. While all businesses are subject to taxes, it is not equal across the board. Keep this in mind when having your business listed as a corporation, LLC (Limited Liability Company), a partnership or a sole proprietorship.

Once a business is listed properly, then it becomes clearer which tax bracket the business falls into. As a corporation, a business can be listed as a 'C' Corporation or an 'S' Corporation. Again, this makes a huge difference when it comes to saving money. An 'S' Corporation is able to save up to thousands more in taxes simply because of the way the arrangement for said businesses is set out. Subsequently, it's a good idea for owners of partnership or sole proprietorship businesses to consider forming a corporation instead.

Another way to save big on taxes is for business owners to pay themselves an actual salary as opposed to simply taking the business profits for themselves. This is known as Fair Market Value, or FMV. By paying a reasonable wage for services rendered as an employee of the business, owners can actually avoid having to pay large amounts of payroll taxes.

Excess profit is then paid out as a dividend, which is not subject to payroll tax. This can happen easily under 'S' Corporation arrangements. For other business models, even if there is FMV in place, a 15 percent payroll tax is still applicable on profits as well as employee salaries.

Yet another reason to make a small business into an 'S' Corporation is that business owners can make deductions on losses. As a 'C' Corporation, a business may have to carry losses forward to the first year of experiencing a profit. This can be quite difficult and trying for new businesses, as running a small business can often run into financial trouble long before any profit is made and, of course, end in failure.

Another very good way to save money when running a small business is to hire family members, namely children who are old enough to work. They will, of course, need to receive fair pay for their services, but by keeping the business in the family, it can get a deduction every year in taxes. This is due to each child being allowed a certain threshold of income completely tax-free.

A final loophole to help you save money in your business is to plan vacations as part of business trips. This is easy to do by simply extending the length of the trip by a few days so that you can relax after taking care of business. This way, you do not have to pay additional expenses for travel and you can deduct travel expenses as a business expense.




About the Author:



No comments:

Post a Comment