Running a small business is like running a marathon 24/7.
Figuring out small business taxes is like adding in a triathlon once a year for fun.
If you’re like most people, you’re lost and confused when it comes to taxes. You do know that you want to reduce your business taxes.
If you’re figuring out how to save on taxes in your business, here are three tips to keep in mind.
1. Use Tax Planning Software
It might seem obvious, but one of the best ways to guarantee better tax savings is to invest in tax planning software.
Let’s be real: you are not a tax attorney, an accountant, or anyone with training that qualifies you to understand the United States tax code. That’s okay. Most people don’t have that training either.
The question is why you would try to file your taxes manually when you know you don’t understand the tax code.
According to the IRS, there’s a 21% error rate for paper tax returns. The error rate on electronically filed returns is less than 1%.
Tax planning software catches any potential mistakes you might overlook and checks your information to make sure you take advantage of every applicable refund.
2. The Home Office Deduction
One great example? The, a.k.a. the best friend of small business owners and the self-employed.
The home office deduction allows you to deduct business expenses if you use part of your home for business purposes, whether you’re a renter or homeowner.
Tragically, many business owners are too afraid to use the home office deduction because they worry it will bring an auditor to their door like a rabbit pulled from a hat.
To be clear: fear of an audit should never keep you from legitimate deductions. As long as you keep meticulous records and can prove your deductions are for business, you’ll be fine.
Just make sure that your office is distinct from your living space. You’ll also have a hard time claiming a deduction for an office computer if it’s the only computer you own.
3. Deduct Section 179 Property
Let’s say that your business has grown beyond your spare bedroom and you’ve invested in property, like a piece of equipment or a car, for business purposes.
Did you know that you can get a tax deduction on that property?
Section 79 property deductions allow you to deduct the full amount of certain property as business expenses, thus reducing your taxable income.
In order to be eligible under section 79, the IRS has two property requirements:
- The qualified property must be tangible, depreciable, personal property acquired for use in conducting business
- The property must be purchased and put into use in the year that you claim the deduction
Eligible deductions include:
- Any type of facility used for business purposes
- Any land used for business purposes
- Machinery and equipment
- Business personal property (i.e. office furniture, computers, equipment, shelves, etc.)
- Buildings used to hold horticultural products or livestock
- Listed property that can be used for business and personal purposes
- Cost of improvements to buildings such as a security system or HVAC
Keep in mind that there are several exceptions and restrictions, so be sure to check with a tax professional before you include items on your section 79 deduction.
Figuring Out How to Save on Taxes?
We know that small business owners have a lot on their plates. That’s why we’re here to help your business run smoothly.
If you’re still figuring out how to save on taxes, check out our blog for more useful tips, like these five ways to ensure you aren’t underpaying your taxes.