Every year, there is a lot of attention being paid to just how many lawmakers are working to help small businesses by giving them tax breaks, and many entrepreneurs may find these to be valuable. However, data shows that many of these are, perhaps, not as impactful as those on Capitol Hill may think.
One of the big reasons for this is that taxes are especially important to companies that are just starting out, according to a report from the Tax Policy Center. That’s because companies tend to lose money in the first few years after they start out, and those businesses might often pay higher tax rates than more successful companies that have been around for a while.
Another issue that many face is that while a large number of tax breaks exist for small businesses nationwide, the vast majority don’t apply to every company, the report said. Instead, a lot of them apply to companies in a specific industry, and therefore leave the rest out in the cold when it comes to saving money. For instance, a lot of the most valuable tax breaks are focused on companies that spend tens of thousands or more annually on equipment, meaning that while those benefits are technically available to those outside equipment-reliant industries, the value of them is going to be significantly reduced.
Why it’s beneficial
This isn’t to say that tax breaks aren’t good for small businesses overall, because many tend to operate on such thin margins that even the ability to reduce their liabilities by a few thousand dollars annually can go a long way, the report said. However, more might have to be done to make sure that when companies miss out on the potentially massive benefits of one type of tax break, they’re propped up by another, and this should be particularly of concern for unprofitable companies that might just be in their first few years of operation.
Owners who want to do more to make sure their companies are able to keep their costs as minimal as possible so that they can qualify for more tax breaks might want to consider the benefits of more affordable small business insurance. Reducing expenses on liability insurance, for instance, could help them to save thousands of dollars each year, and potentially devote that money to improving other aspects of their companies.