We have recently discussed The Best Financial New Year’s Resolutions but with tax time looming, we’ve decided to switch gears. Being a business owner requires learning everything about your company from top to bottom. When the topic of your business tax return pops up, can you honestly say you know everything or even enough about how to get the most out of it? The process involving a tax return can be frustrating, but small business owners need to keep on top of on what they can deduct as well as the benefits available to them in order to reduce their tax burden. As we all look for ways to build when starting or building a small business, saving money is key. Read on to get our list of 5 must deduct items for your business tax return.
1. Startup Costs
The first year of your business is a great time to deduct costs. In fact, the IRS allows you to deduct as much as $5,000 of your startup costs during the first year. This includes just about any costs associated with your starting your business, including those allocated with:
– Leasing or purchasing an office space
– Office equipment including computers, copiers, even the coffee maker
– Tech expenses including software, internet fees, routers, web memberships, etc.
– In fact, the IRS allows you to deduct any business expense that is “both ordinary and necessary”
2. Small Business Health Options (SHOP)
Small business owners also have access to a relatively new tax credit that can put money in your account in this tax return deduction. The small business health care tax credit is a good benefit for employers:
1. Who employ fewer than 25 full-time equivalent workers
2. Who pay average salaries of less than $50,000 a year per full-time equivalent worker
3. Who for tax years 2015 and 2016 have an inflation-adjusted amount of $52,000 in average salary per full time worker
4. Who pay at least 50% of their employee’s health insurance premiums
Of course, there is another catch. In order for business owners to be eligible for this tax return credit, they must have purchased healthcare coverage through the small business health options program, also known as the SHOP, on the marketplace of healthcare.gov.
3. Use of Your Home for Business
No matter if you run part or all of your business from your home, you may deduct a portion of these expenses on your tax return. Since you also live in your home, you may not deduct all of it. However, those with a nook, room, or garage dedicated to their business are eligible for a deduction. These deductions can include mortgage, interest on the mortgage, rent, insurance, utilities, internet expenses, computers, laptops, tablets, repairs to the home, and even depreciation. You may look at the pdf for Home Office Deduction and Publication 587, which covers the Business Use of Your Home, for more information and deductions on your tax return.
4. Start, Continue, or Invest More in Retirement
Business owners who contribute to an IRA may contribute up to $5,500 for the year without claiming the money as income on their tax return. Those who are self employed can also set up a retirement account such as a SIMPLE IRA, Savings Incentive Match Plan for Employees. This retirement account allows contributors to add both as an employer and an individual. This strategy has the potential to double the amount of money of tax-free money that can be added to an account.
5.Depreciation Isn’t Always Bad
If you buy a large, expensive item for your business and use it for over a year, you may not be able to deduct the entire cost in that tax year. However, you can depreciate the item this year and take a part of the cost as a deduction on your tax return each following year the item is used. Under this deduction you can take as much as 50% of the item’s cost as a deduction for the year it was purchased. In addition, a business property can be deducted under the Section 179 Deduction, which covers all properties purchased for business up to the value of $500,000. This deprecation rule does not include rental properties.
Business Tax Return in Houston
If you are wondering how to go about getting assistance on deducting items for your business tax return, you can contact a professional bookkeeper in your area, or if you are in the Houston area, contact us.