To most people, taxes are just a necessary evil, but if you’re a small business owner, you have the opportunity to turn tax season in your favor. Too many entrepreneurs leave money on the table because they’re not sure how to navigate the complex sea of tax code. Once your business is big enough, you’ll probably hire an accountant who’ll be able to look through your finances with a fine-tooth comb in order to find you any and all tax deductions or credits. However, if you’re still operating in your home office, chances are you’d like to save a little bit of overhead and file your taxes yourself.
Not sure what you’re looking for or how you can benefit from Trump’s new tax code? Here are the best little-known tax tips to put your small business’s profits back into your pocket in 2019.
If you are indeed working out of that home office we mentioned, then you might be able to deduct it on your taxes. Measure the work area and divide it by the square footage of your home; the percentage is the fraction of rent, mortgage, utilities, and maintenance you may be able to deduct if:
- The office is clearly distinct from the rest of the living area
- You have a separate computer for personal use
This deduction is not-so-secret and instead rather well-known because it signals red flags to auditors, but if you do it correctly, you could save a significant amount of money on your taxes.
Maybe your small business doesn’t require you to work from home, but instead requires you to travel frequently. If that’s the case, keep track of all your receipts and write off expenses such as air fare, car rentals/mileage, hotel fees, and so on. Food is deductible up to 50% and the whole family can come along, but only you and your business-related costs count.
Get New Equipment
Whether your home office could use a new printer or you need to upgrade to a laptop with a better battery life to support your work on-the-go, equipment expenses are tax-deductible up to a certain amount under section 179. Even a work vehicle can be deducted, so long as you don’t use it for personal use as well. The deduction limit can vary by year, but Trump’s Tax Cuts and Jobs Act increases equipment deductions up to $2.5 million since 2018 and beyond. If you’ve been on the fence about a new software program or technological need, now might be the time to invest.
You’ve probably heard of the eco-friendly tax breaks offered to consumers, but did you know they apply to businesses as well? There are a number of environmental tax incentives that you could take advantage of by going green, such as the Energy Tax Credit which amounts to up to 30 percent of qualified expenditures. You can do the Earth good and cut down your tax bill in one fell swoop.
If your small business grows to the point where you need some help running operations, consider giving a veteran an opportunity! Hiring an unemployed service member may qualify you for the Work Opportunity Tax Credit, Returning Heroes Tax Credit, and Wounded Warriors Tax Credit. With these incentives, adding the talent and skills of a veteran to your team isn’t just a noble gesture, it’s a sound business decision.
If you consult, freelance, or are self-employed, you have the option to delay billings until late December, meaning you won’t receive the actual payment until the following year and therefore won’t get taxed as income in the current year. This is a viable tax-saving strategy if you expect to be in the same bracket the next year, otherwise be mindful of how pushing over additional income could bump you up to the next highest level.
It’s always wise to have a future financial picture of your business in mind when calculating your tax strategy. Are you running a rental business on the side? Now might be the time to consider a lease renewal to ensure you can count on that income in the upcoming months. Have your eye on a construction project that, when completed, could take away all your parking spots? Depending on what the future may hold, you might want to tailor your tax strategy and adjust the capital losses you declare.
There are a number of year-end tax planning strategies that you should reflect on. Did you start your company with the intention of selling five to ten years down the road? If you formed your small business as a C corporation, you may be exempt from 100 percent of the gain on sale of your stock. Or, if you have no intent on selling, you can reap tax benefits by slowly converting to an S corporation.
Make Uncle Sam your friend, not your foe, this tax season by seeking out the various tax breaks offered to small business owners. Here’s just a few to get you started.