When you’re launching a new business, there are so many things to think about, plan for, and keep track of. Sure, it’s a lot of work, but there’s also a lot to look forward to. Some of the best aspects of being in business for yourself are being able to shape the vision and purpose of your company, creating a workspace that you really enjoy being in, and following your passions.
Thinking about filing the income taxes for your business probably isn’t one of those passions (unless you’re in business as a professional tax preparer, in which case, we totally get it). However, being smart and diligent about doing your business taxes can really help you save money.
If you’re an entrepreneur with a new business starting up this year, here are seven tax tips you’ll want to remember and follow. Even if you’ve been in business for a while, there might be some useful information in here for you as well.
Save on Taxes by Saving for Retirement
When you’re self-employed, you can reduce your taxable income by making contributions to your Individual Retirement Account (IRA). If you’re under age fifty, you can deduct up to $6,000 of your IRA contributions from your taxable income. If you’re over fifty, the limit is $7,000. That means your taxes go down this year and you won’t have to pay any taxes on that income until you withdraw it from your account.
Just remember that Roth IRA contributions don’t lower your current taxes—you don’t have to pay any taxes on them when you make withdrawals, but they aren’t deductible.
Carry Forward the Health Care Tax Credit
The small business health care tax credit was designed to help employers who provide their workers with health insurance. Businesses with fewer than 25 full-time employees whose wages average out to less than $50,000 per person get the most benefit from this credit.
If your business doesn’t owe taxes for a given year, you may be able to carry the health care tax credit forward for that year. You might also be able to amend returns to claim the credit for prior years if you missed out. Keep in mind that there are certain criteria for calculating full-time equivalent employees, and be sure to research whether the type of business structure you have in place meets those standards.
Keep Your Receipts
This time-honored advice might have felt silly when you first started doing your personal income taxes—how many of those expenses could you really deduct, anyway? But when you’re running a business, it’s a whole different story.
Depending on what type of business you’re running, a lot of those day-to-day purchases can be deducted as business expenses, if they had to do with the maintenance and operations of your business. Set up a filing and storage system at the start of the year, and make a habit of putting those receipts away, for when tax time comes around.
Deduct Eligible Property
Small business owners can deduct quite a lot of business-related property as expenses, in the year you begin using them. This so-called “section 179 property” includes things like computer software, equipment used in manufacturing and transportation, and buildings used for research, business operations, or product storage.
You can deduct up to $1,000,000 of eligible property under section 179, but make sure you read up on the rules, so you know what qualifies and what doesn’t—investment properties, lodging, and other types of structures aren’t eligible under this rule.
Deduct Your Car and Home Office
You have to be a little careful with this one, as there are some very specific rules about what qualifies as a home office, but if you conduct business out of your own home and use your own car for business-related travel, grabbing these deductions is a no-brainer.
For your car, you can calculate your actual expenses, or just take a standard mileage-based deduction. Your home office can be deducted whether you rent or own your house—just make sure you’re deducting accurately, according to the actual square footage and expenses dedicated to your business activities.
Figure Out Whether to Sell or Dispose of Old Equipment
When you’ve got business property you no longer need, think about whether you’ll save more money by selling it or scrapping it. When you sell old equipment, that’s a capital loss, and it isn’t fully deductible. Abandoned property, however, is fully deductible. Check the relevant tax laws and crunch the numbers to see if you’d make more by selling a piece of old equipment or if it would make more sense just to throw it away and take the full deduction.
Look for Penalty Relief, When Needed
Sometimes, stuff happens, and you just don’t get your taxes filed or paid in time. This isn’t an ideal situation to be in, but it can happen to the best of us.
Fortunately, there can be some forgiveness for penalties in certain circumstances, like when the taxing authority makes an error that negatively affects you. You can also apply for penalty forgiveness if you were unable to pay due to circumstances beyond your control, like a medical emergency or family crisis.
Nobody really enjoys paying taxes, so take the sting out of the process by looking for as many ways as possible to (legally!) save money and reduce your tax burden. By doing so, you can stay focused on investing in your business and helping it grow. Business taxes can get complicated, so don’t hesitate to get help from the experienced tax professionals at SL Tax Centers, when the time comes to get your paperwork together!