Rarely do small business owners look forward to preparing and paying taxes. In addition to the headache of paperwork, it can be expensive to buy tax software or hire a tax professional. But tax time can also be a time when you can save money by taking advantage of appropriate and available tax deductions. Here are 5 small business tax deductions you don’t want to miss.
1. The qualified business income deduction (aka the pass-through deduction)
The Tax Cuts and Jobs Act signed in 2017 included new provision. Section 199A permits owners of sole proprietorships, S corporations, or partnerships to deduct up to 20% of the income earned by the business.
To qualify, business owners must have taxable incomes below $157,000 or $315,000 for married couples filing jointly. (Attorneys, physicians and other service occupations cannot take the deduction). This deduction is famously complex and confusing so consult a tax professional if you want to take advantage.
2. Section 179 deduction
The tax reform law now allows small business owners to write off double the expenses of some purchases.
By allowing businesses to deduct the full amount of the purchase price of equipment (up to certain limits), Section 179 is a fantastic incentive for businesses to purchase, finance or lease equipment this year. Review this comprehensive list of property that qualifies here.
According to Section179.org, to qualify for a Section 179 deduction, the equipment must have been purchased (or leased/financed) and placed into service by midnight, December 31st of the year you are taking the deduction for.
3. Office rentals
In addition to deducting the cost of an office rental or other work space as a business expense, there is an advanced tax strategy that could save even more money.
If you’re in the financial position to purchase a building or workspace, you can create a separate LLC to purchase that property then rent that space back to your business. An experienced CPA or tax attorney should guide you if you want to use this tax-saving strategy.
If you’re tired of paying rent, owning a commercial space where you operate your business helps to build equity and has other tax advantages. Visit the SmartBiz Loans website for information about using a low-cost SBA loan with a 25-year term and no balloon payment to purchase the space where you operate your business: SBA Loans for Commercial Property Purchase or Refinance.
4. Retirement plan contributions
Only 14 percent of small employers sponsor some type of plan for their employees to save for retirement, according to data from the Government Accountability Office.
Offering this type of plan is not only good for your current employees but can help attract top-talent and give you a tax deduction. Check with a tax professional about your specific plan and how to take a related deduction.
5. Business vehicle deduction
If you use a vehicle for work, there are two ways to calculate the tax deduction. The first way is to add the cost of maintenance, fuel and other expenses. The other way is to take a standard mileage deduction for the total miles driven. No matter what method you use, you must keep detailed documentation, beyond a credit card statement.
Not sure if you want to DIY your taxes or hire a professional? Visit the SmartBiz Small Business blog and review the pros and cons of each: Small Business Taxes: Self File or Hire a Professional?