Tax relief might sound like a topic best suited for accountants, financial analysts, or professional advisors. However, if you are a non-financial manager running a department, a project, or even an entire small business, understanding the basics of tax relief is crucial. Ignorance is not bliss when it comes to taxes; it’s expensive. With the right know-how, you can take advantage of legitimate avenues to reduce your tax burden, thereby freeing up capital for other investments.
This blog post is designed to simplify tax relief measures, breaking them down into easily digestible parts for those of us who don’t speak “finance.”
1. Identify Tax Deductible Expenses
The first step in reducing your tax burden is to identify which expenses are tax-deductible. These range from operating expenses like utility bills and rent to employee salaries and benefits. You can also deduct the cost of business-related travel, meals, and entertainment to some extent. Many non-financial managers might find this overwhelming and potentially confusing.
That’s where professional tax relief advocates come in handy. These experts can guide you through the maze of deductible and non-deductible items, ensuring you make the most out of available tax relief options. They can even help you strategize for future tax years, assisting in planning your expenses in a way that maximizes your deductions.
2. Leverage Depreciation
When you purchase equipment, machinery, or other long-term assets for your business, their value will typically decrease over time due to wear and tear. This decline in value is known as depreciation, and you can deduct it from your taxable income.
As a non-financial manager, you don’t have to know the intricate details. Just make sure you are keeping accurate records of when assets were purchased and how much they initially cost. Your financial team can take care of calculating depreciation and applying it to your taxes.
3. Explore Tax Credits
Tax credits are even more valuable than deductions because they reduce your tax liability dollar for dollar. The government often offers tax credits for specific activities, such as research and development, hiring veterans, or using renewable energy. Being aware of these can substantially reduce your tax burden.
4. Take Advantage Of Loss Carryforward
In some years, your business might incur a loss. While this is an unfortunate circumstance, there is a silver lining: you can carry this loss forward to offset future profits.
Known as loss carryforward, this measure can significantly reduce your tax liability in succeeding years when your business becomes profitable. Make a note to consult with your financial team about the possibility of applying this strategy.
5. Consider Alternative Business Structures
Different types of business structures have varied tax implications. For instance, C Corporations are subject to double taxation, where the company’s profits are taxed, and shareholders also pay taxes on dividends.
On the other hand, S Corporations, partnerships, and sole proprietorships have pass-through taxation, which avoids this double taxation issue. Discuss with your advisors whether a change in business structure could be beneficial for you tax-wise.
6. Be Mindful Of Deadlines
One of the most straightforward ways to avoid unnecessary financial burden is by paying attention to tax deadlines. Late filing and payment can result in penalties and interest, increasing your tax bill.
This might seem obvious, but in the hustle and bustle of running a business, these deadlines can easily be overlooked.
7. Seek Professional Help
The complex world of taxes often necessitates expert advice. Even if you understand the basics, the nuanced laws and ever-changing regulations make it challenging to stay compliant while maximizing tax relief.
Tax advisors and accountants can provide insights that automated software may not catch. They can also represent you in case of an audit, providing an additional layer of security.
Managing taxes need not be an overwhelming or daunting task for a non-financial manager. The key is to get acquainted with the basic principles and strategies that can help minimize your tax liability. From identifying deductible expenses to exploring tax credits and considering different business structures, each step brings you closer to optimizing your tax position.
And when the path seems too complex, never hesitate to seek the assistance of professionals. After all, the money you save through effective tax planning can be better invested in growing your business.