It's tax time. The time of year when business owners must go over the past year's receipts and create a profit and loss statement. For many small business owners its also a time of great stress. Many of them have lots of expenses and small profit margins and are worried that a large tax bill can leave them in the red. But there are a number of strategies small business owners can use to legally lower their tax burden. The following are a few tax tips small businesses can use to get the exemptions and deductions that they need to lower their state and federal tax bills.
New Equipment Purchases
Equipment purchases can take a big bite out of the budget of a small business. Fortunately it also qualifies them for a big tax deduction for their business as well. Businesses can deduct as much as $500,000 a year from their tax bill for new equipment purchases. Plus, for the first two years after the equipment is bought, the business owners can claim large deductions for the depreciation of their equipment.
Buying a vehicle for your business or using your personal vehicle to conduct company business also entitles you to a significant deduction. The expenses related to automobile use can be deducted in two different ways. One way is through deducting your actual expenses and the other way is to use the standard mileage rate. Using the standard mileage rate enables you take to 51 cents per mile, plus tolls, parking costs, fuel, maintenance, and other operating costs. If you choose to use the automotive expense method, you are allowed to deduct all your business-related automobile expenses as well as depreciation of your automobile's value from your tax bill. But be sure to keep good records.
Start Up Costs
Starting a new business can be very expensive. The government understands this and allows business owners to deduct as much as $10,000 in capital costs associated with starting their business. The business owner can take the deduction all at one time or spread it out over as long as five years. This can reduce their tax bill significantly.
Legal And Professional Fees
The legal and professional fees business owners pay to attorneys, accountants, and other professionals each year are tax deductible. Even money business owners spend on books and other materials related to law, accounting, or other issues about the operation of their companies can also be deducted.
Many business owners use their credit cards or take out loans in order to help with financing their businesses. The interest paid on those loans are tax deductible. All they need is the documentation and financial records to verify the expense and the source.
If the business owner or one or more employees travel for purposes related to the business, those travel expenses are tax deductible. That includes plane fares, car rental costs, hotel accommodations, and meals. The money spent on laundry, communications, and other miscellaneous items related to business trips are also considered tax deductible expenses.
Unpaid debts, costs related to entertaining clients, the cost of software, and even some sales, real estate, excise, and fuel taxes can all be deducted from the small business owner's tax bill. These are just a few ways small business owners can save some money. For business owners unsure of all the tax breaks to which they are entitled, a call or visit to a regional Small Business Association office can help. However, they must also keep accurate, organized records to show they qualify for the deductions.