Business owner, if you’ve ever wondered why you’re paying so much in taxes, one reason may be that you’re not investing enough in your company, or if you are investing, you’re not claiming all allowable deductions.
Other possible reasons include not paying as you go, your business is not established as the correct entity type for your particular business, and inadequate planning. Many business owners, however, don’t realize, how much they can save on taxes by investing more in their business and claiming the tax deductions the law allows. By spending a few hours to understand all your allowable deductions, you can save thousands of dollars.
Is Your Business a Startup?
First, if your business is a startup, the law requires you to capitalize all of the costs in starting up your business, rather than immediately taking a full write-off for them. By doing this, you will write off, or amortize equal portions of all your expenses for 15 years or 180 months. This will start with the first month your business is operating. You can deduct as startup costs any expense that would typically be a deductible business expense if you incurred it after the first day your business began operations. Such investments can include the cost of advertising the grand opening of your business, surveying, salaries for employees in training, traveling to locate new clients, suppliers, or distributors; and fees consultants charge.
Use Depreciation Rules to Save on Taxes
Did you recently buy any large items for your business, something you will use for more than a year? You can’t deduct the entire cost in the year purchased. Instead, you will depreciate the expense and deduct a portion annually on your tax return. To save more and deduct more in the year purchased, use the special depreciation allowance. You can take 50 percent of the cost of the item as a deduction the year purchased. The rule will apply to almost anything tangible you buy.
In addition, you might be able to deduct 100 percent of the cost of business property purchased using the Section 179 Deduction. This is for all tangible property purchased for a business. If the property is residential property, you can’t deduct it.
The Lifetime Earning Credit
Have you furthered your education for the sake of your business? The Lifetime Earning Credit is worth up to $2,000 per year (as much as 20 percent of $10,000 spent on post-high school education). This pays for education and college expenses to improve your job skills. In addition to this deduction, the costs of a class or seminar to improve or maintain your skills are also deductible.
Do You Have a Home Office?
If you do some of your work at home, you can possibly deduct some of your everyday living expenses. While you can’t deduct solely a desk in one room, if you have converted that room into an office, you can. In that case, you can deduct insurance, mortgage interest, repairs, depreciation, and utilities.
Contribute to a Retirement Account
Once established, more of your business income can be sheltered from taxes by contributing to a U.S. IRA (Individual Retirement Arrangement) account for you and your spouse.
You can contribute as much as $5,500 annually. If you consider yourself self-employed, retirement accounts such as SIMPLE IRAs (Savings Incentive Match Plan for Employees) and SEP (Simplified Employee Pension) accounts can be established. This will allow you contribute as an employer and as an individual, which can double the amount you can put in tax-free.
Keep Records of Everything You Buy to Grow Your Business
Save receipts of all furniture, new equipment, software, new equipment, or technology you buy. Keep detailed records that include the price and date placed in service. This will help you substantiate anything you claim on your taxes.
Whatever You Give, Including Bonuses to Employees, Can Be Deducted
Certainly one of your biggest and best investments for your company is your employees. Bonuses, and the accompanying payroll taxes to employees, officers and partners is deductible, as is the donation of supplies and equipment. If your business is an S corporation, be certain you follow IRS requirements and avoid penalties.
For more information, feel free to contact us.