Tax season is probably a business owner's least favorite time of year. However, this is the best time to look for ways to save money on your tax bill and maximize the credits & deductions that you can qualify for. Continue reading for tax tips to know as a business owner.
Classify Your Business
If you have a sole-proprietorship, partnership, S-corporation, or a Limited Liability Company, your business is classified as a pass-through business. This means that any business profit flows to the owners or members and is taxed as personal income. However, if you have a C-corporation, the profits are taxed via corporate income tax. Having a C-corporation could allow you to qualify for higher deductions. Consult with a business accountant to see if your business is classified correctly.
Keep Your Records Clean
Keeping track of all of your records and receipts will make tax season much easier when it comes to calculating your business expenses. Another tip is to have a specific business bank account that you use to make all business-related purchases. This will make it easier to keep track of all your business expenses since they will all be in one place.
Section 179 Deduction
Many business owners need to purchase equipment to run their businesses. During tax season, they will write off the equipment a little bit each year as it depreciates. Section 179 will allow you to claim the full expense of the equipment the year you purchased it. Equipment can include office furniture, technology, office supplies, and more. Check out this list to see all qualifying items.
Home Office Deductions
If you run your business from home, you may qualify for the home office deduction. To claim this deduction, you must exclusively and regularly use part of your home or a separate structure on your property as their primary place of business. There are a few additional details about qualifying for this deduction:
- Employees are not eligible.
- This deduction is available for homeowners and renters.
- A few of the expenses that can be deducted through this deduction include mortgage interest, insurance, utilities, repairs, maintenance, depreciation, and rent.
- The term “home” includes:
- A house, apartment, condominium, mobile home, boat, or similar property.
- Additional structures on a property such as an unattached garage, studio, barn, or greenhouse.
- Does not include any part of the taxpayer’s property that is used as a hotel, motel, inn, or similar.
- There are two basic requirements for the taxpayer’s home to qualify for this deduction:
- A portion of the home must be exclusively used for conducting business on a regular basis.
- The home must be the taxpayer’s principal place of business. This requirement can be met if administrative or management tasks are conducted in the home and no other location.
There are two methods of calculating the home office deduction:
- Using the rate of $5 per square foot of the business area in the home. The maximum is 300 square feet for a maximum deduction of $1,500.
- Deductions can be calculated based on the percentage of the home that is exclusively used for business.
Hire the Right Accountant
It’s important to consult with an accountant throughout the year, not just at tax time. An experienced business accountant will be able to provide tax-saving tips and maximize your deductions & credits. Having a great accountant on your side can be the difference between an easy-going tax season and a tough audit.
If you’re worried about properly filing your business’s taxes, our advisors at Lifebridge Financial Group are more than happy to help. We will be able to walk you through the process and give you pointers to get the best tax bill outcome possible. Give us a call today to get started.
Sources:
https://www.nationwide.com/lc/resources/small-business/articles/tips-for-small-business-taxes
https://bankgreenwood.com/small-business-tax-tips-top-10-tax-saving-tips-for-owners/
https://www.section179.org/property_that_qualifies_for_section_179/
https://www.irs.gov/newsroom/how-small-business-owners-can-deduct-their-home-office-from-their-taxes