How to Reduce Your Small Business’s Tax Bite

By Karen Axelton

Now that the presidential election is less than a week away, one of the big questions that’s been hanging over small business owners’ heads for the past year or so is about to be resolved: Will taxes rise or fall?

Three-fourths (77 percent) of small business owners surveyed in the new Hartford 2012 Small Business Success Study believe their taxes are likely to rise. If so, small business owners report they will offset the higher taxes by passing costs on to customers (66 percent), delaying expansion plans (58 percent), reducing personal investments in their business (55 percent) and putting on a hiring freeze (54 percent). However, only 28 percent say they would lay off existing staff.

Small business owners are already making many of these same moves in response to the uncertain economy. The most common steps entrepreneurs report taking to deal with slow economic growth are cutting costs (80 percent), strengthening existing client relationships (76 percent), prospecting for new clients (69 percent) and refining their business strategy (65 percent).

Asked for more specifics about what they’re doing to cut costs, 68 percent say they’re taking less money out of the business, 57 percent are investing less in expansion, 52 percent are reducing owner/partner compensation and half are hiring fewer employees.

The Hartford study found that taxes were the second-biggest issue concerning small business owners (slow economic growth was the biggest concern, cited by 67 percent of respondents). Despite this passion about taxes, the study also found that one-third of business owners surveyed aren’t taking advantage of tax incentives or deductions that are available to their businesses. That’s mostly because they don’t know what these incentives or deductions are (37 percent) or do not qualify (35 percent).

What can you do to pay the fewest taxes, no matter what the outcome of the election?

• Keep accurate records and up-to-date financial statements so you can document any deductions you take in case of an audit.

• Make sure you’re working with your accountant and tax advisor to take all the deductions and exemptions you and your small business are entitled to.  Trying to prepare your taxes on your own can cost you more than you save.
• Keep up with industry newsletters, blogs and publications to stay on top of tax changes that apply to your type of business. Unless your accountant specializes in your industry, even he or she may sometimes miss new changes that could save you a lot on your tax return.

Image by Flickr user photosteve 101 (Creative Commons)

This entry was posted on Thursday, November 1st, 2012 at 6:00 am and is filed under Accounting and Taxes, Compliance, Small Business, small business. You can follow any responses to this entry through the RSS 2.0 feed.


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