10 Tax Tips for Small Businesses

Don't let tax time get lost among the joys of owning your own business.
Don't let tax time get lost among the joys of owning your own business.

What could be better than owning a small business? You get to make important business decisions, but without the pressure of running a gigantic behemoth corporation. You get to lead a few employees with benevolence and wisdom. You get to panic come tax time when you realize that what the government is asking for is more than you planned -- and you're the one in charge of figuring out how to make it work.

So perhaps it's not all fun and games. But in the next few pages, we'll explore some tips to make your small business feel a little more substantial during tax season. From tax breaks to organizational tips, there's no reason to dread April -- we've got you covered!

10: Get a Good Accounting System

Want to avoid taxes altogether? If you're looking for a surefire way to turn your small business into a failed business, be sure to ignore the basics of accounting and bookkeeping. With your business run into the ground, your taxes will be a cinch. (Well, next year maybe.)

In all seriousness, there's no simpler way to start off on the right tax foot than to simply keep track of what you're making and spending. Because small business are able to itemize a lot of expenses, it's also very wise to make sure that you have records and receipts for any of the costs you'd like to write off. That doesn't mean jamming flimsy pieces of register tape into your junk drawer; scan and digitally file your expenses. If the IRS audit team comes knocking, you'll be able to show them an organized, legitimate paper trail.

9: Capital Expenses

Obviously, you're not allowed to ask the government to pay you back for the normal costs of operating a business. Sure, you can deduct some of the expenses you have, but clearly you gotta wait until you're actually running the business.

Or do you? Turns out that the first year you start up your business, you can actually deduct $5,000 in capital expenses. ("Capital," in this case, basically means they're not current expenses.) That sound broad? It kind of is. Basically, any cost you incur while creating or investigating a business might count. If you paid for advertising, market surveys -- even wages for employees -- before the launch of your business, you can take that $5,000. Any amount over $5,000 might be deductible as well, but you'll have to amortize it over the course of several years [source: IRS].

8: Hire Your Kids

We're not talking about forcing adolescents into factories here. We're actually just suggesting you to add some economic stimulus to your own household by hiring your own children. Nope, it's not just because it seems like a nice thing to do; it really can help ease the tax burden on a small business.

Here's the thing: You have to give them a reasonable wage, but you don't have to pay Social Security or federal unemployment tax if they're under a certain age. (Keep wages low enough, and they don't have to file income taxes in general.) You can even say that their wages are, say, just enough to cover that phone bill you pay for them every month. They get to work to pay off the phone bill, and you're not taxed on it as ordinary income. Keep in mind, however, that you have to run a sole proprietorship -- or a partnership with your spouse -- in order for this to work.

7: Hire Your Spouse

Here's another way to keep business in the family. Perhaps being a small business owner is a nice way to become closer to your husband -- by giving him a job. It's not just kind of you, or a way to make sure you both get the same time off during the holidays. Hiring a spouse can actually work extremely well in your tax favor if you're willing to offer your loved one a few perks.

That doesn't mean a corner office and morning doughnuts. (The day buying doughnuts becomes a tax write-off is the day I quit doing any work besides buying doughnuts.) It's actually the opposite of doughnuts that's going to help you save some money: If you hire your spouse and offer him or her health insurance, you can deduct those payments on your taxes. Which sounds great -- being able to write off your spouse's health insurance seems nice -- but what's the big deal? Well, consider that a health insurance plan can include not only the employee, but the employee's family. Suddenly, you're able to write off your spouse's insurance, your insurance and your kids' insurance [source: TIME].

6: Affordable Care Act Credit

When the Affordable Care Act was introduced, there was a lot of talk about how it would affect small business owners and their bottom line. Nobody wanted to bleed small business owners dry, so tax credits were introduced in the bill to relieve the cost of healthcare.

In 2014, a small business owner can qualify for a 50-percent deduction if the business employs fewer than 25 employees with average annual wages of less than $50,000 and contributes at least 50 percent to employees' self-only health premiums. You do need to make sure your employees are purchasing insurance in the Small Business Health Options Program Marketplace, but it's a huge credit for any business that qualifies.