9 Ways Small Business Owners Can Capitalize on Tax Savings
Tax season is approaching… and if you feel that drop in your stomach when you hear the word “taxes,” you are not alone. Owners of businesses, large and small, all over the US have experienced the anxiety often induced by tax time. However, with the right amount of preparation and insight into helpful deductions that you can take, tax season can actually come and go without leaving you panic-stricken and anxious. (Yes, it’s possible!) We’ve outlined some of our top tips for saving money as you file your business taxes.
1) Take advantage of self-employment compensation
Running your own business has some huge benefits, as we’re sure you’ve come to realize. However, when you’re self-employed, you don’t have an employer to share in the cost of Social Security or Medicare taxes. The IRS allows for a deduction of 50% of your self-employment tax as compensation, so be sure to take advantage of this allowance when filing your taxes!
2) Capitalize on vehicle expense deductions
Do you use your personal vehicle for business purposes? If so, you likely qualify for a significant deduction. Just be sure to track your business, commuting and personal miles, and the business purpose for your miles for the IRS, and you can count on deductions for your taxes for a standard mileage rate. (This rate varies year-to-year, but currently, sits at 53.5 cents per mile.) You may instead opt to deduct the actual expenses of driving your vehicle for business, a process that involves tracking the aforementioned information as well as gas, oil and service expenses, any interest on a vehicle loan, depreciation, lease payments, and insurance costs.
3) Implement Accountable Plans
Reimbursement can be costly if reported as employee income. If your company reimburses its employees for travel, lodging, tools, etc., you may want to look into an accountable plan, which handles reimbursements according to IRS requirements. Using an accountable plan allows the business to deduct the expenses without reporting the reimbursements as employee income, which opens the door to potential employment tax savings.
4) Consider Deducting Business Insurance Expenses
Using IRS form 1040 to calculate your deductions, you may opt to deduct your yearly business insurance expenses. Liability insurance, worker’s compensation, commercial auto and business interruption service insurance are a few of the deductible coverage costs.
5) Deduct Phone and Internet Service Fees
Maintaining communication services of a small business can be costly. Be sure to set aside time to look into internet fees, along with any subscriptions you may have for virus or malware defense or other services you use to keep your computers running efficiently, and see if you’re entitled to any deductions. In the same way, look into your phone service – if you use a separate phone strictly for business use, whether landline or cell phone, you can take a full deduction for that phone service. If you use a personal cell phone, keep an itemized list of your monthly phone bill, so that you can separate out minutes used for business purposes, and get a deduction for a percentage of your phone bill.
6) Work from Home
Having a home office has more advantages than working in your pajamas from time to time. With some upfront planning, you can save your business thousands in deductions. These are available to renters and homeowners alike. In addition to the phone and internet service fees mentioned above, you’re also entitled to utility, equipment, space, security and other miscellaneous deductions. If you only use one room of your home for your office, deductions are based on the percentage of your home devoted to business use. So, if your office takes up 15% of your home, you’re able to deduct 15% or your monthly rent/mortgage, electricity, gas, security system, etc…The IRS offers resources to get you started on Home Office Deductions here.
7) Do Lunch Meetings
This might be one of our favorite tax breaks. If you tend to take employees or clients out to lunch for meetings or other business purposes, you may be entitled to deductions on up to 50% of meal costs (so long as the meal prices are reasonable – so maybe skip the surf ‘n’ turf). While the deductions for a single day’s meal may seem negligible, these deductions can really add up when you reach the end of the year. If anything, it’s another excuse to treat yourself to lunch out with your employees for a casual meeting after a difficult week.
8) Budget Your Frequent Flyer Points
When you travel often for business, you tend to rack up points on your airline miles card pretty quickly. While it can be tempting to use these points while flying for business purposes in order to reduce business travel costs, try to budget your points instead for personal travel costs, especially if you fly for personal reasons regularly. Your personal travel costs earn you no tax break, while business travel costs, on the other hand, are fully deductible as business expenses. By utilizing your miles for personal savings, you’re also capitalizing on savings for business trips, resulting in a greater amount of savings overall.
9) Deduct the full amount of purchased business equipment using Section 179
Why deduct small amounts year-by-year and watch your deductions shrink as your equipment depreciates when you can deduct up to $500,000 of the total cost at once? Section 179 allows business owners to put equipment into service and deduct the total amount of the equipment in one go, before the item depreciates. Business owners across the country choose to capitalize on Section 179 and save thousands in taxes when they do so! If you’d like to learn more about what Section 179 can do for your growing business and how you can use it to purchase new equipment before the end of the year, click here.