Owning and operating a small business in any environment can be challenging. Over the life of a business, an owner might encounter issues related to startup, cash flow, and even the overall economy.
Taxes are the biggest expense for small businesses, but many owners are so busy that they don’t have the time to devote to reducing this expense. One study reveals that small businesses overpaid more than $11,600 on average in business taxes due to a lack of awareness of the availability of a single tax exemption.
Fortunately, there is plenty of tax help for small businesses if you know where to look. In fact, there are more than 350 credits and tax deductions available for individual professionals and small businesses. Here are some of the top ones that could give your business some much-needed tax savings.
When you get your business started, you’ll surely have some additional expenses. The federal government likes to incentivize people to hang out their shingles and does so through lucrative tax deductions.
The Section 179 deduction has changed a bit over the years, and it now has a $1 million limit. In short, you can write off certain equipment purchases and reduce your tax obligations. It can be confusing to decide which write-offs and deductions to choose, so it’s a good idea to speak with an adviser.
Business Travel, Meals, and Entertainment
If you travel for business, even locally, you can deduct some of those expenses on your annual return. The travel costs that are eligible for full deductions include airline tickets, taxi, hotels, meals, phone calls, laundry. You can also combine business trips with pleasure but will need to keep track of your percentages and follow some strict guidelines for the deductions.
Having customers that don’t pay their bills is tough to handle, but the IRS does provide some relief and tax savings. You can deduct these bad debts on your taxes as long as it the value of cost of goods sold and not lost profits or the cost of services.
Home Office Deduction
More people are working from home than ever, and the IRS no longer considers the Home Office Deduction to be a red flag. If they did, they’d never get any other work done. If you are entitled to this deduction and use it appropriately, it could save you thousands in taxes each year.
The IRS continues to change the rules with respect to the treatment of charitable contributions. Currently, businesses can still support charities and deduct some of those contributions provided they meet the agency’s criteria.
If you underpaid your taxes, the IRS would be sure to let you know. Not necessarily the case if the reverse were true.
The study referenced above revealed that more than 90 percent of small businesses qualify for the Alternative Minimum Tax (AMT) exemption. Even so, many still overpaid in taxes.
Section 55(e) of the Internal Revenue Code gives small firms an exemption from the AMT provided they meet certain gross tax receipts. It makes sense to check this each year to ensure you aren’t paying Uncle Sam too much.
Keep in mind that the tax code is changing constantly. In 2020 alone, the federal government has created some additional relief related to the COVID-19 pandemic. It would be asking an awful lot for any small business owner to stay on top of these developments.
The JUVO Business Group specializes in helping small business owners in Charleston, SC identify opportunities and maximize results. Contact our office today to learn more about how we can work together.