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Tax Strategies for Small Business Owners

As we get closer to the tax filing season starting January 23, 2024, small business owners will want to bring tax preparations closer to the top of their priority list. There are several year-end planning strategies that can set you up for a smaller tax burden.

Evaluate Your Business Structure

Are you a sole proprietor, limited liability company (LLC), S corporation, or C corporation? Some of these business structures have similar tax liabilities but can also have significant differences that impact how you file your taxes, what deductions you can take, and so on.

If your company has grown substantially in the past year, it may be worth considering a new business structure and how it could benefit your overall taxes. Switching from an LLC in the highest tax bracket to a C corp, for example, could benefit you in that the top corporate income tax rate is currently 21%, which has dropped since the passing of the Tax Cuts and Jobs Act of 2017. An LLC owner pays income tax on their individual tax return, where the highest bracket is 37%.

Deduct What You Can

Small businesses have a lot of options when it comes to the deductions they can make. These include:

  • Work-related travel expenses — If you have to take a work trip for a client meeting or something of a similar nature, you can deduct things like airfare, rental cars, hotels, etc., but only if the trip is strictly necessary and related to your business. You also must travel outside of the area in which you conduct business.
  • Work-related vehicle use — If you use your car solely for work, you can deduct all costs associated with it. But if you split your vehicle between work and personal use, you can only write off the percentage at which you use it for business purposes.
  • Meals and entertainment — Anything that falls under this category must be related to business activities only and you must keep a record of the date, location, business relationship, and cost. However, stringent as the IRS can often crack down more heavily on falsified claims of meals and entertainment expenses.
  • Cell phone or internet use — Similarly to vehicle use, if your internet and/or phone bill (if you have a specifically designated work phone plan) are used for business purposes only, you can write these expenses off. If you split between that and personal use, you can write off the percentage used for work.
  • Office supplies and subscriptions — If you purchase computers, software and other programs, desks, or any other supply used for business, they can be deducted.

These are only a few of the types of deductions small business owners can make, so consult with your tax preparer or financial advisor on what other areas of your business provide deductions.

Get Ahead of Your Tax Planning

The most important thing is to not wait until the last minute. Tax filing begins in January, and while you don’t have to do so immediately, waiting until the final deadline can land you in unexpected situations that may negatively impact your business. To get ahead of your tax preparations even before filing season starts, contact one of our professionals at Republic Bank. Call 800-526-9127 — and be sure to visit our resource library for more small business banking and financial planning tips.

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