The 3 Big Tax Savings for your Small Business

While winter is gone, tax season is coming and businesses are scrambling to organize their financials in preparation.  As a small business owner, it is very important to know how to reduce the cost of tax and increase the bottom line.  Here are 3 of the biggest ways to cut taxes for small business.

Equipment

Large items such as furniture, cars, software, or pizza ovens are all tax deductible.  This essential means you get an automatic discount on all equipment purchases.  Depending on what type of business you own, these can make up the bulk of your deductions for the year.  In 2016, you can deduct up to $500,000 (or in some cases up to $590,000) in equipment and property placed in service expenses under section 179.  Click here for more information and a full list of property that qualifies.

Retirement

A great way to save money in a tax sheltered manner is to open an individual 401k retirement fund.  Depending on how much your business generates in income, you can deduct up to $53,000 ($59,000 if you're 50 or older).  This is essential not only because it saves your business from paying taxes on the amount, but can also put you in a lower tax bracket at the individual level. 

Tax Shield

Many savvy business owners take advantage of borrowing capital, even when their businesses are performing well.  This reduction in income taxes allows merchants to increase their net earnings because interest on debt is tax deductible. By taking on debt, companies can increase its value as long as investments made from the borrowed capital has a return that is higher than the interest expense.