Tax planning throughout the year reaps benefits during tax time. Small businesses can lower their tax bill for 2019 by using the many tax deductions available to them this tax year. Knowing these deductions now can help you to strategize your investments and expenditures, and also keep your tax records right. Along with the 20% tax break that many small business owners qualify for, there are other important tax deductions to benefit from. U.S. News shares:
“The qualified business income deduction
Also known as the pass-through deduction, the qualified business income deduction allows certain small business owners to deduct 20 percent of their income. The deduction is only available to owners of pass-through entities such as sole proprietorships, partnerships, S corporations, and limited liability corporations. Plus, there are limitations on income and a person’s occupation. To qualify, individuals must have taxable incomes below $157,000 or $315,000 for married couples filing jointly. What’s more, certain service occupations such as attorneys and physicians are barred from the deduction.
Deduction on expenses on equipment
Small business owners can now write off double the expenses of some purchases, thanks to the tax reform law. ‘A big change in 2018 is that they can now expense equipment up to $1 million,’ says Elliott Servais, vice president at financial firm EP Wealth Advisors in Orange County, California. Previously, small business owners could only write off up to $500,000 in certain purchases.
Expenses that can be immediately deducted are outlined in Section 179 of the tax code. These include vehicles, equipment, machinery, and computers. Expenses not eligible for an immediate deduction are subject to depreciation.
Businesses that rent their offices or other workspaces can deduct the cost as a business expense.
Retirement plan contributions
As a type of pension, a defined benefit plan may be best for a company with very few or no employees. It allows a small business owner to save significantly more for retirement than what would be allowed in a 401(k) plan, and that can result in more sizable tax savings, too.
Defined benefit plans are subject to complex government laws so business owners should consult with a professional when setting one up. They also aren’t right for every business. ‘You do want to have a steady cash flow,’ Servais says. ‘If your cash flow is really up and down, it’s probably not a viable option.’
Business vehicle deduction
‘One of the things most business owners go back and forth on is deducting the car,’ Conroy says. While the mileage method is easier, business owners might get a bigger deduction if they track their actual expenses. Either way, it’s important to keep detailed records. Those planning to claim a mileage deduction for business travel should keep a log of their trips, while those claiming actual expenses will need documentation.
‘A lot of business owners are under the impression a credit card statement is enough,’ Conroy says. ‘That’s not the case. You need invoices, and you need receipts.’
Home office deduction
Those who work out of their home can claim a home office deduction. ‘It’s gotten a bad reputation over the years,’ Steber says, with some people concerned it raises their chances of an audit.
However, it can be a valuable deduction that shouldn’t be overlooked by those who can claim it. Eligible office spaces are those that are used exclusively for business purposes and are a principal place of business or used regularly to meet with clients. Free-standing structures and garages can also qualify for a home office deduction if they are used exclusively for business purposes. Taxpayers who have a qualifying office are then entitled to deduct a portion of their home’s utilities, homeowner insurance, maintenance costs, and similar expenses.
Being a small business owner means juggling many responsibilities. Whether you are doing your own taxes or finding a professional to handle them for you, make sure you take advantage of these six money-saving tax strategies.”