Tax reductions are financially beneficial for franchises and small businesses. A tax reduction lowers a person’s tax liability by reducing their taxable income. Taxable income is the part of your gross income that federal, state, or local tax agencies determine is subject to taxes. This is how the amount of taxes you are required to pay—your tax liability—is calculated. Tax deductions can drastically reduce your tax liability and save your business money. Below, Indevia Accounting has put together some of the top tax reductions for franchises and small businesses.

Top Tax Reductions for Franchises and Small Businesses

In order to stay in business, it’s necessary to make a profit. One of the ways to ensure your business finances are in order is by utilizing tax reductions that apply to your business. Consider the following tax reductions for your franchise or small business.

Travel Expenses: 

Depending on the nature of your business, you may need to travel a lot. If you travel for business, the travel is fully deductible. Keep in mind that personal travel alone cannot be deducted. To ensure you can deduct travel expenses your trip must consist of mostly business, in addition to expenses that are “ordinary and necessary.” Plan the trip in advance and keep documentation of everything. This can help ensure everything is organized and accounted for in the event of an audit.

Hire Family: 

While this may not always be the best-case scenario, employing the right family member can have tax benefits in the form of a tax reduction. If your family member is a good fit for your business, the IRS allows for a variety of options in terms of tax reductions. They all have the potential benefit of sheltering income from taxes. For example, hiring your spouse or children means you won’t be subject to unemployment taxes. A professional accountant can help determine which options are best for you in order to comply with federal, state, and local laws.

Home Office: 

If you have a home office, you can deduct a portion of your rent or mortgage, the cost of utilities, and any repairs to your home office. The home office must be used regularly and exclusively for business purposes to qualify for this deduction. Talking with a professional, certified accountant can ensure you utilize this deduction properly. 

Business Structure: 

Business owners do not have the benefit of their employer paying their Social Security and Medicare taxes. This can be a major financial burden that can impact your business. However, structuring your business as an LLC (a “limited liability company”) can be financially beneficial. While you still have to pay certain taxes, some may be eliminated due to the structure of your business.

Business-Related Education: 

Concept vector showing methods of business education which can be a tax reduction for franchises.

If you or your employees take advantage of business-related educational opportunities it can be helpful in a variety of ways. Not only can it have the potential to grow and improve your business, but it can also be a tax reduction as long as the educational benefits add value to the business or increase your or your employee’s skill set. This can include anything from continued education to books related to your business.

Retirement Plan: 

There are a number of retirement account options that can help maximize your savings for the long-term, in addition to resulting in several tax benefits. For many, long are the days where your employer matches your 401(k). Looking out for your financial future is a top priority which can be done much more easily when you own your own business. You are in control, and the tax benefits are helpful in a number of ways. Alternatives to 401(k) plans when you own your own business include 403(b) plans, IRA, Roth IRA, or an SEP (“simplified employee pension plan”). Consulting with a certified accounting professional can be beneficial when deciding which plan is right for you.

Health Savings Account: 

A health savings account (also referred to as an “HSA”) is similar to a personal savings account. However, the money in the account can only be used to pay for health care expenses. There are major benefits to an HSS account as the contributions are pre-tax, withdrawals for medical expenses are tax-free, and you can grow the account without paying taxes on the money. In addition to all of the tax benefits, the account can be helpful in the future if you experience any major medical bills.

Indevia Accounting

The success of your small business relies upon organized and strategic financial strategies. A major component of this is taking advantage of the tax reductions available for franchises and small businesses. Because business financials and taxation can be overwhelming, it’s helpful to work with trusted professionals who understand the ins and outs of business accounting. Contact Indevia Accounting to ensure your small business is on track for the success of your financial future.

Featured Resources