1 Don’t Procrastinate Resist the temptation to put off your taxes until the very last minute. Rushing to meet the filing deadline may cause you to overlook potential sources of tax savings and will likely increase your risk of making an error.
2 Hire your children to work in your business. Wages paid will be deductible by your company and taxable to the family member. Your child’s earnings will probably fall in a lower tax bracket than yours. Payroll taxes apply to such wages; however, if your business is a proprietorship or family partnership, they do not apply to wages paid to your children under 18. Compensation paid has to be reasonable for the services performed.
3 Incorporate and elect S Status. If your sole proprietorship or partnership is producing a net profit in excess of a reasonable compensation for your time, you could save money by operating as an S corporation. You’re required to take a reasonable salary for the work you do but no more than that. With an S corporation, the salary you take will be subject to both income and payroll taxes. The profits above that amount are subject to income tax but not payroll taxes.
4 If you operate in corporate form, keep accurate and thorough minutes for the corporation. Minutes should document transfer of funds or assets into or out of the corporation, officers’ salaries, shareholder dividends, officer and employee benefits, and related-party transactions that might be scrutinized by the IRS.
5 Choose your legal form of doing business carefully. The tax and nontax consequences of the form you select are significant. The basic forms of operation from which to choose include sole proprietorship, partnership, corporation, or limited liability company. Seek professional assistance before deciding, and review your chosen business form from time to time to see if it’s still appropriate
6 Consider switching from the accrual method to the cash method of accounting if you meet the qualifications. Under the cash method, you generally report income to the IRS in the year you receive payment from customers. Under the accrual method, you report income when a sale is made to a customer regardless of when the bill is paid. Most business owners prefer the simpler cash method.
7 File Your Return Electronically.