A great deal of responsibilities lay on the shoulders of individual business owners operating in partnerships, including tax liability. Their professional decisions can have major personal financial impacts, and therefore, must be chosen carefully. Business owners operating in partnerships should consider the following three tax tips.
Document and organize
The biggest tax difference about operating a partnership rather than another type of corporate structure is that business tax liability flows through your personal tax return. You should document business expenses down to the details. Keeping thorough and organized expense records is imperative to making the most out of your situation. Claiming small daily expenses can add up to a lot of saved money during tax season. Consider just some of the items you can claim on your return:
- Meals: Qualifying business meals can be expensed, so keeping receipts will be important. You should keep not only the receipt for the meal but details about who you dined with and how the meeting relates to the business.
- Education: Educational classes and workshops may be deductible if it adds value to your business.
- Home office expenses: Items such as your desk and laptop may be deductible.
- Road travel: If you use your personal vehicle for business purposes then you can claim depreciation and mileage deductions.
Choose better benefits for high-performing employees
Most employers give their employees raises when they exceed expectations. If you give an employee a raise, then they will be taxed on that much more income. That means you are putting extra money into the government’s pocket that could go to your workers. Additionally, you will need to pay higher payroll taxes under Medicare and the Federal Insurance Contributions Act.
Instead, consider rewarding your employees with better benefits. It is likely that your employees pay high premiums for their health insurance. It may be more beneficial for you and to your workers to cover the costs of premiums rather than give them raises. Putting the same amount of money into covering insurance premiums may remove significant tax liability.
Find out if you qualify for a tax break
Under the Tax Cuts and Jobs Act, business owners operating in partnerships may qualify for a 20 percent business income tax break. You might be eligible if your income is below $157,500 if single or $315,000 if married. If your business has grown, then you might not qualify. If that is the case, then consider whether it may be beneficial to change your corporate structure. The corporate tax rate is 21 percent.
If you are unsure about your tax liability or if you think that shifting your business structure may be beneficial, then work with a tax attorney to make sure you minimize tax liability going forward.