3 Tax Deductions Small Business Owners Should be Aware of
December 22, 2016
The U.S. tax system can be pretty complicated, especially for small businesses.
The U.S. tax system can be pretty complicated, especially for small businesses. According to the Tax Foundation, enterprises across the nation spend 2.8 billion hours annually filing business income tax returns. This doesn’t include S Corporations, the employer’s quarterly federal tax return, sales of business property or other taxes organizations have to pay.Working with tax, trust and estate attorneys not only reduces the amount of time you have to spend filing tax returns but also allows you to identify opportunities to keep some of your hard-earned cash. Below are three tax deductions you might be able to take on your next filing:
1. Deduct equipment and software costs
Section 179 of the Internal Revenue Code allows a deduction for the full purchase price of certain equipment and/or software you bought or financed during the tax year. While many purchases are deductible under Section 179, you won’t be able to claim this benefit for every piece of equipment you purchase. However, the deduction decreases on a dollar-for-dollar basis if you’ve placed more than $2 million of Section 179 property in service during a taxable year. Listed below are several items that qualify for the deduction:
- Business vehicles with a gross weight greater than 6,000 lbs.
- Computers and “Off-the-Shelf” software
- Machines for business use
- Office furniture and equipment
2. Vehicle usage
This particular deduction applies to you if you’re the sole proprietor of a business and use your personal vehicle in your day-to-day operations. If you use your automobile for both personal and business purposes, you need to divide the mileage accordingly. You should keep record of any business miles you drive each year in the event you need to verify this information with the IRS. You can refer to the IRS’ standard mileage rates document and Publication 463 for more information.
3. You’ve hired your child
If you employ one or more of your children who are under the age of 21 years, you won’t have to pay social security and Medicare taxes associated with their income if you own a sole proprietorship or participate in a partnership with your child’s other parent. The Wall Street Journal noted this can add up to $15.30 in savings for every $100 you pay your kids.
Obviously, there are more than just these three deductibles. If you want to learn more about how you can save money on your tax returns, if you have any questions, or if you would like to discuss the matter further, please contact me, Jeffrey Pittard, at 201-806-3364.