Are you a business owner? Are you getting all of your potential tax savings? With those dollars representing precious resources you could invest back into your business, it is not just about getting more money in your pocket. It could be the difference between your business’ long-term failure and success. And while large corporations have entire teams of tax accountants who specifically seek out and help capitalize on these tax savings, that is a luxury most small organizations do not have. Check out these tax saving tips for small business owners to help you compete with the big guys.
Tax Saving Tips for Small Business Owners
If you are a small business owner, you are all about finding extra money wherever you can. Tax savings is no exception. But with the notorious complexity and length of the federal tax code, along with state taxes, it can be difficult to be sure you are gettings all of the tax savings to which you are entitled. In this post, we have broken down our seven top tips for ensuring you do not leave any money on the table.
Invest in retirement now
One of the most immediate and practical ways to reduce your tax liability is to set money aside for retirement. If you are under the age of 50, you can invest and deduct the entirety of up to $5,500 of your income in a traditional or Roth IRA and defer the taxation on that money until it is withdrawn at retirement. For business owners over the age of 60, that potential deductible investment goes up to $6,500.
While retirement investment is always advisable, the reality is that it may not yet be an option some small business owners. Luckily, if you do not have the ability to put money away just yet, there are plenty of other tips you can use to maximize your tax savings.
Deduct your home office
If you are anything like most small business owners, you probably spend a good deal of time working from home. If this is the case, did you know that you may be able to deduct a portion of your home expenses. This can include rent or mortgage payments, insurance, utilities and repairs. Calculate the percentage of your home’s square footage that constitutes the home office and deduct proportions of those expenses accordingly.
Deduct vehicle expenses
Similarly, vehicle expenses can be deducted. This deduction get a little trickier because there are a couple of ways to do it and it requires math to decide which makes the most sense. You can take a deduction for mileage based on the driving you do for business. Or you can deduct a percentage of your total car expenses based on the percentage of time in your car is dedicated to building your small business enterprise.
Don’t sell that old equipment
At face value, selling equipment that you are no longer using or that no longer meets the needs of your business seems like the most logical way to put more cash in your pocket. But what you do with old equipment determines how it will impact your taxes as a small business owner. If you sell the equipment, it will constitute a capital loss.
If you instead go the route of simply abandoning the equipment, it constitutes an ordinary loss which is fully deductible under Section 1232 of the tax code. Again, there is some math required here to determine the best course of action. But think twice before simply listing it for sale!
Maximize the value of new equipment
We have recently written another article that touches on the potential business tax savings under Section 179 of the tax code. Under a new section of that code, 100 percent of the costs to buy and begin using qualifying equipment or software in 2018 can be deducted, up to $1 million, provided your company is not investing more than $2.5 million in the equipment in question total (a pretty generous allowance for small businesses).
However, for 2017 (the taxes you may be getting ready to file now), the maximum deduction is only $500,000. Talk this over with your tax accountant to find out if this new increase means that new investments make sense for your business from a tax standpoint.
Keep track of EVERY receipt
You probably already know that you should be doing this. But being vigilant about receipts for business expenses is kind of like flossing your teeth: We all know that we are supposed to. And we all intend to do it. But unless you are a completely type-A person, it probably does not happen every day the way professionals recommend.
Luckily, there are multiple online solutions that can make tracking receipts infinitely easier. Give us a call and let us discuss the types of expenses you normally incur and which solution makes the most sense for you. And let us know if you come up with an idea for an app that will make daily flossing more palatable. We may be interested in partnering with you!
Find the right tax accountant
Above all, the best way tax saving stip for small business owners is to find a tax accountant specializing in small business whom you like and trust. A knowledgeable professional will build a relationship with you over time and take steps to understand your business in a way that allows them to find the best tax saving solutions for you.Have a question about your small business taxes? Whether you have already filed everything you need to for 2017 and want to create a strategy for 2018 or if you are under the gun trying to figure out what you have left to wrap up last year’s paperwork, give us a call. We’ve seen it all and pride ourselves in finding personalized solutions for business owners of all size.