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Filing taxes for your business can be a difficult process. Still, you want to maximize your savings, tax return, and long-term financial security. Here are 8 tips that will help you make sense of filing business taxes and start you off on the right foot!
The IRS says that deductions on your business taxes must be both ordinary and necessary for the kind of business you run. To the IRS, ordinary means that the expense is common for your business type, and necessary means that the expense is helpful for your business type. These guidelines are a good way to think about your business deductions, no matter what industry or tax category you are working in. By following IRS tax guidance, you are taking steps to avoid any issues or an audit.
The Home Office Deduction is available regardless of whether you rent or own your home. It can apply to a room in your house or even a garage or shed, as long as the space is used regularly and exclusively for your business.
Because home offices are more popular these days, filing for a Home Office Deduction is not as much of a red flag for the IRS at it once was. When filing, be sure to include only costs associated with your rent, utilities, real estate taxes, repairs, maintenance, and other necessities.
Certain business property is covered under IRS tax code Section 179 to give small and medium sized businesses more freedom to invest in themselves. Section 179 gives you the ability to deduct the full purchase price of equipment or software that qualifies. A wide range of equipment and property used for your business can qualify, even if you are leasing.
The limit for Section 179 Deductions is $500,000 on a total amount of equipment purchased of $2,000,000. The limit exists to ensure that this deduction applies to small and medium sized businesses only.
If you use a vehicle for your small business, you can deduct a portion of the operating costs. For a vehicle that you use exclusively for your business, you can deduct the whole operating cost for the tax year!
However, for a vehicle that you use for both business and personal needs, you will have to determine how much you use it for your business. The deduction is based on your vehicle’s mileage, so it is essential to keep records of how you use your vehicle for business purposes.
This might make more sense when planning for next year, but making donations as appreciable stocks rather than cash will allow you to deduct the current worth of the stock, rather than the purchase price. That means whatever gains your appreciable stock value has accumulated by the time you file your business taxes positively influence your deductions.
If your business has fewer then 25 full-time employees, wages average at less than $50,000 per year, and you have paid at least half of your employees’ health premiums, you are eligible for the Small Business Health Care Tax Credit.
The maximum credit is 50 percent of premiums paid for small business employers and 35 percent for tax-exempt small business employers. In order to claim the credit, you must full out IRS tax form 8941, Credit for Small Employer Health Insurance Premiums.
Your business purchases can be deducted, of course, but how you classify them will make a difference in the total amount of your deductions. Business supplies are consumed throughout the year and include office supplies and shipping supplies. Business equipment is a permanent item that serves you business’ needs over time. This does not include commercial property or land.
Remember that your business’ employer contributions to your employees’ retirement plans are tax deductible. Depending on the kind of retirement plan you offer employees, you will have different tax deduction and tax credit options. If you want to learn more, take a look at our previous post about how to choose the right retirement plan for your business.
This is a summary of some of the main ways your business can maximize your taxes this season. For more detailed information based on your situation, contact Mendes Weed, LLP.
Mendes Weed, LLP serves clients in the San Francisco Bay Area, throughout California, and nationwide. Their dedicated experience with IRS Business Tax Law, Trusts & Estates, and Business Formation Law provides a unique value to clients.
Disclaimer: The tips and materials provided on this page are for informational purposes only, offered as public service. No information on this website should be considered legal advice or used as a substitute for legal advice. For legal advice, you should contact an attorney directly.