Smart Tax Write-Offs for Your Small BusinessKnow these top tax saving ideas from the pros.
You always hear about loopholes that help big business and multimillionaires avoid paying taxes. As a small business owner struggling to pay your taxes, do you ever wonder where your loopholes are hiding?
Tax law specialists and former IRS lawyers Deborah and Garrett Gregory feel your pain. Here they reveal their top tax saving ideas for small businesses.
Open a retirement account
As a small business owner, you can create a retirement plan that lowers your current-year taxes and helps you save for retirement.
“Contributions to your retirement plan are excluded from your taxable income up to specified limits,” Deborah Gregory said. “Consult a tax professional to help you set up your plan as there can be many complicated rules and considerations when choosing a plan that best meets your needs. There are a couple of different options to choose from: 401(K), SEP IRA, and SIMPLE plans.”
Deduct your business property (179 property)
Small businesses can elect to deduct the full cost of certain types of property as expenses in the year the business started using them.
“You can make this election instead of recovering the cost through depreciation deductions. An example of qualifying 179 property is tangible property such as machinery and equipment,”Garrett Gregory said.
Report your travel and meal expenses
Miles you drive for business purposes in your personal or company-owned car are tax deductible.
“At the end of the tax year, you can either take the standard mileage deduction or your actual car expenses,” Garrett Gregory said. In general, if your car is newer and used primarily for business, the actual expense method may yield a larger deduction. There are limitations; however. For example, you can’t use the standard mileage rate if you have claimed accelerated depreciation deductions in prior years or have taken a Section 179 deduction for the vehicle.
If you travel for business you can deduct 100 percent of your hotel and cost of travel (air, rail or auto) and 50 percent of your meals. “While you’re home, you can deduct 50 percent of meals when you pay for a meal while conducting a business meeting with a client or business associate,” Deborah Gregory said.
Claim your insurance premiums
If you are self-employed and pay your own health insurance premiums, those premiums are 100 percent deductible. As with all deductions, there are rules. For example, the deduction is not allowed if you were eligible for other health care coverage, including coverage offered by your employed spouse’s medical plan.
Beginning in 2016, companies that employee 51 or more people must provide health insurance. These premiums are not considered income and are not taxable. The rules governing insurance for employees are complex, so you may want to consult a tax professional.
Keep good records
No deduction is possible without the records to back it up. “Many times small business owners wear too many hats. They are the CEO, marketing director and office manager. It’s best to hire a tax professional that can keep your books and records,” Deborah Gregory said. “The biggest mistake we see small business owners make is that they do not keep good records.”
Records are your only proof if you are audited. “The best defense to an audit is good record keeping,” Garrett Gregory said.