Tax season can be especially strenuous for small business owners. Attempting to report everything accurately can generate a lot of anxiety, wondering if you may be overpaying. In fact, almost 93 percent of small business owners in one survey overpaid their taxes over the past dozen years.
Under the new Tax Cuts and Job Act there are several new considerations that could increase tax savings for small business owners. The following deductions may help you maximize tax savings to have funds available to reinvest into your business.
Keep in mind — it’s always optimal to consult a qualified tax professional who can help you determine the best course for filing your taxes.
Qualifying for a 20% deduction
Under the new tax code, entrepreneurs may qualify for a 20 percent tax deduction. According to CNBC, qualified S-corporations and Limited Liability Corporations (LLCs) may receive the full deduction regardless of their industry, however, there are specific limitations. In general, to qualify for the full deduction, your taxable income must be below $157,500 if you’re single, or below $315,000 if you’re married and file jointly.
If your company exceeds these thresholds, you may not receive the deduction. Specialized service related businesses, such as attorneys or physicians operating their own practice, may not qualify.
First-year bonus depreciation
Historically, newly-acquired equipment and property was eligible for a 50 percent initial deduction, followed by a portion to be written off each additional year in the form of depreciation. According to Entrepreneur, under section 179, small businesses may exercise a 100 percent deduction on newly purchased, eligible, property and equipment. Lawmakers are hoping the money back in tax breaks, will be used to reinvest in the business or hire new employees.
Don’t overlook these additional deductions.
Most business owners understand that certain expenditures for operating costs may be written off. However, there may be a few deductions you weren’t aware of that can add to your tax savings. Small Business Trends shared the top 20 tax deductions for small businesses during the 2017-2018 tax season. Here are a few highlights from that list.
- Home office – Many small business owners, especially those just starting out, may not have the time or funds to secure a separate location to operate their business. However, there are tax benefits to operating out of the comfort of your own home. A portion of your personal expenses may qualify to be deducted if you use your home regularly and exclusively as a place of business. This may include anything from hosting client meetings or painting your home office. In fact, a percentage of your rent or mortgage interest and real estate taxes which adequately reflects the percentage of business use at the residence may qualify as a deduction.
- Utilities – If you are using your home as an office, a portion of your utilities may be reported as a business expense. Additionally, if you use your mobile phone for business purposes and/or provide your employees with a mobile phone for business operations, your phone charges may qualify as a utility cost deduction. Keep in mind if you are using your home as an office, your first landline may not be reported as a utility cost. However, if you have a second line for business purposes, that may qualify as a reportable utility expense.
- Employee benefit programs – Whether or not you operate your business out of your home, offering additional incentives to potential employees can be crucial for retention. Benefits packages including insurance and contributing to an employee’s retirement plan, as well as any educational assistance, may be fully deductible.
Consult a tax professional
Finding the time to track and report business related expenses can be difficult, particularly if you are operating alone. It’s always highly advantageous to consult a Certified Public Account (CPA) to ensure you are maximizing tax savings and reporting your taxes correctly. Don’t let the weight of owning your own business make you crumble during tax season.
Whether on your own or with the help of a CPA, be sure to get the most out of your small business tax deductions this year.