4 Small Business Tax Laws that Can Save You Money

Small business tax laws can save you money if you know what those laws are. The tax codes are updated yearly, but some things rarely change. There are 4 small business tax laws that are often available to small business owners, year after year:

1. Independent Contractors vs. Employees

You don't have to pay taxes on payments made to independent contractors, according to small business tax laws. You do for salaries and payments made to your employees. As long as the contractors are truly "independent" according to IRS guidelines, all that's required on your part is to report any payments that exceed $600 to one contractor, on Form 1099-Misc. For example, if you hire a web developer to create and maintain your website and only pay him $599, you don't have to issue to a Form 1099-Misc. to the developer or the IRS. However, if you hire a virtual assistant on a monthly basis and pay her $15,000 for the tax year, then you have to report those payments. However, you don't have to pay taxes on it.

2. Make Spouse and Children Employees

While hiring outside employees may not work to your advantage for tax purposes, hiring your spouse and children can save you money under current small business tax laws. Children must be at least 14 years old and pay their own taxes. It's a way to save money on taxes because they pay a lower tax rate. It's also a great way to teach them entrepreneurship, and you may be training the future CEO of your small business.

3. Utilities Deductions

As a homeowner or renter you can deduct a portion of your utilities payments if you run a small business at home. Be careful though, because you don't want to run into any problems with the IRS. The home office should be exclusively used for business purposes. For example, you can't claim deductions for your bedroom, simply because that's where you have your computer work desk and where you get most of your work done. To determine how much to deduct, take the square footage of the home office area and divide that by the total square footage of your home or apartment. Multiply that number by the total amount due on your utilities to determine the portion of utility bills that are allocated to your business.

4. Office Supplies

You don't get to deduct startup costs for your business equipment, but you can save money by deducting supplies needed for the day-to-day operations. You can save money in the long run even if you have to purchase many supplies up front, as long as you understand the tax rules and how to apply them. A small business tax accountant or a great tax planning software is helpful to plan a strategy that will help to maximize deductions for office supplies and other business related expenses. Don't buy needless supplies in the hopes that it will make a difference in your tax liability, though. Taxes affect how you plan your business finances, but it shouldn't direct it.

Your tax preparer should guide you through all of the ways you can save money according to the most common small business tax laws. You can also find out what the latest deductions are at www.irs.gov.