How Business Consulting Can Help You Maximize Tax Deductions

Every dollar counts. Watching a large portion of your hard-earned revenue go toward taxes can be frustrating, especially when you’re striving to expand your small business. It’s normal to feel entangled in the complexities of running a business while dealing with the stress of a hefty tax bill. How about keeping more of your earnings in your business? A business consultant can assist you uncover and leverage a myriad of any type of business tax deductions. These deductions aim to alleviate your financial burden and retain a larger portion of your funds, thereby fostering the growth of your business. 

So, how business consulting can make the most of your business's potential while keeping your tax bills in check? Continue reading to save thousands on your taxes.

5 Ways a Business Consultant Can Help Tax Reduction For your Business 

Running a business is no small feat. Navigating the complexities of tax laws can add another layer of stress. Yet, effective tax management can be the key to unlocking more financial resources for your business's growth. Reducing your tax burden while staying fully compliant can be possible with expert guidance and strategic support. Here are 5 ways a business consultant can make a significant difference in minimizing taxes for your business.

Identifying Deductible Expenses

A business consultant can help you identify all possible deductible expenses, ensuring you don't miss out on any opportunities to reduce your taxable income. Common deductible expenses include:

• Office Supplies: Items like paper, pens, printer ink, and software subscriptions.

• Professional Services: Fees for accountants, consultants, and legal advisors.

• Insurance Premiums: There are several types of business insurance premiums that can be deducted. These include.

• Commercial Property Insurance: Protects your business property from losses due to fire, theft, or other covered events.

• General Liability Insurance: Covers claims of bodily injury or property damage that occur during normal business operations.

• Professional Liability Insurance: Also known as errors and omissions insurance, this covers claims of negligence or mistakes in professional services.

• Workers' Compensation Insurance: Provides benefits to employees who suffer work-related injuries or illnesses.

• Business Interruption Insurance: Replaces lost income if your business is unable to operate due to a covered event.

• Travel Costs: Expenses for business-related trips, such as flights, hotel stays, and meals (typically 50% deductible).

• Marketing Expenses: Advertising campaigns, promotional materials, and website design fees.

For example, if you spend $1,500 on marketing and $2,000 on travel costs, these expenses reduce your taxable income, lowering the tax you owe. The IRS calculates vehicle usage for business purposes using the standard mileage rate, which is 67 cents per mile for 2024 and 65.5 cents per mile for 2023. Conversely, actual expenses  (gas, oil, tires, repairs, etc.) for the vehicle's commercial usage can provide significant deductions. 

Strategic Tax Planning

Strategic tax planning involves developing a comprehensive plan to minimize your tax liabilities. Here are some key strategies:

• Salary Optimization: Structuring salaries to take advantage of lower tax brackets and maximize deductions. For instance, paying yourself a reasonable salary and taking the rest as dividends can sometimes result in lower overall taxes.

• Accelerated Depreciation: Using methods like Section 179 to write off the cost of assets more quickly. For tax years beginning in 2024, the maximum Section 179 expense deduction is $1,220,000, with a phase-out threshold of $3,050,000.

• Retirement Contributions: Maximizing contributions to retirement plans such as a SEP IRA or Solo 401(k) can reduce taxable income while preparing for the future. For example, contributing $10,000 to a retirement plan can reduce your taxable income by the same amount.

• Self-Employed Health Insurance: Deducting health insurance premiums if you're self-employed. This can include premiums for medical, dental, and long-term care insurance for yourself, your spouse, and your dependents.

• Employing Family Members: Hiring family members can provide tax benefits, such as shifting income to lower tax brackets. For instance, taxing your child's income at a reasonable salary may result in a lower rate than your own.

More for you: How Financial Coaching Can Help You with Tax Preparation

Proper Record Keeping

Maintaining accurate and detailed records is crucial for maximizing tax deductions. A business consultant can assist in establishing effective record-keeping systems that guarantee the documentation and accessibility of all deductible expenses.

• Receipts and Invoices: Keeping all receipts and invoices for business expenses.

• Mileage Logs: Maintaining a log of business-related travel.

• Accounting Software: Using software like QuickBooks to track income and expenses.

Did you know that even small mistakes on your tax return can lead to big problems? Errors in tax preparation can result in penalties, missed deductions, and even audits. To help you avoid these pitfalls, check out our article on: Common Tax Preparation Mistakes and How to Avoid.

Home Office Deductions

If you use part of your home for business, you may be eligible for home office deductions. This can include a portion of your rent or mortgage, utilities, and home maintenance costs. A consultant can help you calculate and claim these deductions accurately. For example:

• Square Footage Method: If your home office is 200 square feet and your home is 2,000 square feet, you can deduct 10% of your home-related expenses.

• Simplified Method: The IRS allows a simplified deduction of $5 per square foot of home office space, up to 300 square feet.

Education and Training

Investing in education and training for yourself and your employees can also be tax-deductible. This includes costs for courses, seminars, and certifications that improve skills relevant to your business. Proper documentation and understanding of what qualifies can help you take full advantage of these deductions. For example:

• Professional Development: You can deduct a $500 seminar on new industry regulations as a business expense However, attending conferences for personal, business, or political reasons is considered nondeductible.

• Certifications: Costs for obtaining certifications that enhance your business skills can also be deducted.

By leveraging the expertise of a business consultant, you can ensure you're taking full advantage of all available tax deductions, ultimately reducing your taxable income and saving money.

Why Every Business Needs a Tax Advisor?

Running a business comes with countless responsibilities. One of the most challenging aspects is adhering to ever-changing tax laws. A professional tax advisor not only just prepares your taxes, but also strategically aligns your financial decisions with your business goals. They ensure that you stay ahead of tax obligations while maximizing your savings. Here’s why you should consider consulting a tax advisor for your business:

1. Staying Updated with Tax Laws: Tax laws are constantly changing, and keeping up with these changes can be challenging. A tax advisor ensures that your business remains compliant with the latest regulations, helping you avoid penalties and take advantage of new opportunities for tax savings.

2. Making Informed Financial Decisions: Tax advisors provide expert guidance on various financial matters, including retirement planning, estate planning, and investments. By aligning your financial decisions with long-term goals, they help you build a solid financial foundation for your business.

3. Identifying Eligible Tax Credits and Deductions: One of the primary roles of a tax advisor is to identify all eligible tax credits and deductions that can reduce your taxable income. This includes deductions for business expenses, employee benefits, and more. By maximizing these deductions, a tax advisor can significantly lower your tax liability.

4. Professional Representation During IRS Audits: Facing an IRS audit can be stressful. During audits, a tax advisor offers professional support and representation, safeguarding your interests and ensuring a smooth process. This peace of mind is invaluable for any business owner.

5. Saving Time and Reducing Stress: Hiring a professional tax preparer saves you time and reduces the stress associated with tax filing. They ensure that your tax returns are accurate and complete, minimizing the risk of errors and maximizing your tax benefits. With their expertise in tax software, they can efficiently handle your taxes, allowing you to focus on running your business.

6. Comprehensive Planning and Advisory Services: Tax advisors offer a wide range of services beyond tax preparation. They assist with business formation, compliance, and long-term planning, ensuring your business's financial health. They also specialize in identifying tax credits and deductions, optimizing your tax situation.

7. Year-Round Support: Unlike seasonal tax preparers, tax advisors provide year-round support. They assist you in continuous tax planning and financial management, guaranteeing your readiness for tax season and potential financial obstacles.

The Bottom Line 

Maximizing tax deductions is a crucial aspect of managing your business's finances effectively. Business consulting provides the insights and strategies needed to navigate the complexities of tax laws. However, a professional tax advisor can simplify these complexities, ensuring you stay compliant and optimize your tax situation. Contact Apex Advisor today to schedule a consultation and discover how our tax advisory services can help you save more while achieving your goals.