Business tax deductions work by lowering your taxable income, thereby lowering the amount of tax you owe toward your tax return. In order to claim the most deductions possible carefully review this list of deductions to see if they apply to your business, then reach out to your financial planner or tax consultant for clarity with accurate bookkeeping records.
Entrepreneurs, freelancers, and small businesses are allowed to write off a range of business expenses when filing their income tax. These expenses include:
- Startup Expenses
- Business associated travel
- Advertising and Promotion
- Business phone and internet
- Business Insurance
- Health Insurance premiums
- Home Office Expenses
- Office Supplies and related expenses
- Business Meals
- Work-related car use including maintenance
- Business Interest and Bank Fees
- Foreign Earned Income Exclusion
- Interest on Loans
- Real Estate Tax
- Professional Service and Consulting Fees
- Salaries, Benefits, Vacation Pay to employees
- Moving Expenses
- Home Energy Credits
- Client and Employee Entertainment
Personal Tax Deductions for Business Owners
Business owners are able to claim their qualified philanthropic deductions on Form 1040 Schedule A attachment.
Child and dependent care expenses
If you pay someone for childcare or a codependent member, you may be able to claim the Child and Dependent Care Credit. Refer to IRS Publication 503 regarding limits and form requirements.
Depending on the retirement plan, business owners who contribute only to their own retirement funds can claim the deduction on Schedule 1 attached to their Form 1040.
Health care expenses
Out-of-pocket medical costs, like co-pays and prescription costs, can be deducted like the health plan premium and should be itemized on Schedule A. A Self-employed business owner to itemize and deduct health insurance premiums for themselves, their spouse, and dependents.
How Can I Benefit From A 100 Percent Tax Deduction?
100% tax deductions are business expenses of which 100 percent of it can be claimed on the owners’ income taxes. These deductions can result from:
- Annual business phone bills
- Health premiums for the self-employed
- Up to $25 per person per year as gifts to employees and clients
- Office equipment, like computers, printers, and scanners
- Business travel and its associated costs, like car rentals, hotels, etc
- Furniture purchased entirely for office use in the year of purchase
What Do I Do Next?
Contact me to identify which deductions you can claim, which forms you require, timelines, deadlines, and anything else related to Financial Management and Tax Planning.
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I have compiled a list of 20 important questions you should ask your tax planner or financial adviser. As there is no one size fits all template, consider these topics as they relate to your current situation. Keep in mind, this is nowhere near an all-inclusive list as these questions may not apply to you, or there may be questions here that don’t reflect your circumstances.
- How do I convert my Roth IRA and is the conversion reversible?
- Are there alternative ways to contribute to Roth accounts?
- How can I maximize my deductions?
- Do I pay taxes on trust accounts?
- Are my estate planning documents in order?
- What are my state’s laws and potential options to mitigate state, estate, or inheritance taxes?
- What strategy should I use for low cost-basis assets that stem from lifetime gifts or trusts?
- How much can I contribute yearly to a 529 account?
- How do I bequeath to charity?
- Does my company qualify for the 20% deduction for Qualified Business Income (QBI)?
- What are the current year’s highest marginal tax rates?
- Am I obligated to pay the Medicare investment income surtax and what are the limits?
- Am I responsible to pay Medicare payroll taxes and what are their limits?
- What are Child tax credits for this year?
- What are the standard deduction limits?
- Can I deduct my mortgage?
- Are State and local taxes (SALT) deductions capped?
- Can I claim deductions on Medical expenses?
- What are the limits on Estate/gift tax exemptions for the current year?
- What is the Annual gift tax exclusion amount for the current year?
As you may know, I am a qualified tax planner and financial advisor so I would be more than happy to discuss these questions with you in more detail at your convenience. Visit JeffreyLevine.Solutions to schedule a time that works for you via our contact page and let me educate you on your strategic wealth-building and tax planning options.
Section 179 of the IRS tax code permits businesses to subtract the entire purchase price of qualifying equipment and/or software purchased or financed during the tax year whether it is new or used from their gross income potentially providing the company with greater tax relief. The Section 179 deduction has also been incorporated in many of the recent Stimulus Acts and Congressional Tax Bills.
For most small businesses Section 179 allows for the entire cost of qualifying equipment to be eligible and written-off on the 2020 tax return (up to $1,040,000). Section 179 caps the total amount that can be written off at $1,040,000, and the equipment purchase price at $2,590,000 for the 2020 tax year. The deduction is eliminated once $3,630,000 in purchases is reached, an amount usually applicable to small and medium-sized businesses in a calendar year.
Does my business qualify for Section 179 Deductions?
All business entities that purchase, finance, and/or lease new or used business equipment and place it into service during tax year 2020 should qualify for the Section 179 deduction presuming they are within the spending limits. Although $1,040,000 of assets can be expensed that amount phases out dollar for dollar when $2,590,000 of qualified assets are placed in service and used for more than 50% of the time toward business purposes to qualify this deduction.
What Happened to Bonus Depreciation?
Bonus depreciation has been useful to qualifying large business entities but was not always available as a deduction every year while restricting the deduction to include only new equipment. As of this year not only is bonus depreciation available, but it now allows deductions of used inventory beyond the Section 179 spending caps at 100% until 2026.
Even businesses with net losses or no taxable profits still qualify to deduct some of their equipment costs and carry their losses forward under Section 179 and with Bonus Depreciation deductions.
When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation – unless the business had no taxable profit, because the unprofitable business is allowed to carry the loss forward to future years.
For basic guidelines regarding when and how to apply these provisions, which forms are required, to evaluate your equipment purchases for deductibility, or to discuss your tax planning matters please refer to the contact page at JeffreyLevine.Solutions to schedule your free consultation. I am looking forward to hearing from you.
A business owner should be clear on the types of taxes they are responsible for. Primarily, business structure determines what types of taxes will be paid. Here is a synopsis of four primary taxes that may have to be reconciled at different stages of the year:
Income tax is used to bill individuals for their wages or investment income, in proportion to their level of net income. Partnerships file an information return, while all other businesses must file annual returns.
Employers have the following tax obligations:
• Social security and Medicare taxes
• Federal income tax withholding from employee wages
• Federal unemployment tax (FUTA)
Employers must accurately deposit and report federal income taxes, federal unemployment taxes, social security taxes, and Medicare taxes. Employers must select between two deposit schedules at the beginning of every calendar year. They can either deposit federal taxes monthly or semi-weekly. FUTA Tax deposits are normally due within the month after each quarter. There are also quarterly reporting requirements for federal income taxes, social security, and Medicare taxes.
Self Employment Tax
Self–employment tax, or SE tax, is a Social Security and Medicare tax paid by individuals who work for themselves or own their own business.
Excise taxes are particular to goods and products like petroleum, alcohol, tobacco, firearms but there is a broad range of categories and forms that encompass the qualifications for submitting excise tax to the agency of authority.
Remember a company with up to date and consistent tax preparation is much more valuable in case your long term plans are to sell your business. In order to avoid mistakes and meet critical deadlines, contact a tax consultant early on to secure compliance with the agencies involved.
If you require immediate assistance visit my website at JeffreyLevine.Solutions to schedule a free consultation regarding your tax concerns.
When you have a business, there needs to be a complete understanding of the tax authorities your entity is entitled to pay. Being uninformed can cost you time, money, or even your business. In addition to being accountable to the IRS for income taxes, your district, locality, county, and state agencies may require sales, property, payroll, local, excise, self-employment, and other specialty taxes like unemployment.”
Tax returns can be complicated for those with minimum experience, so it is extremely important to consult with a professional to prevent errors, keep costs low, and avoid the audit process.
Proper tax planning allows you and your team to consider quarterly and annual potential tax commitments and requirements, so the company claims the proper deductions that it is eligible for and prevents commingling. An informed business tax planner supports the bottom line so the company’s attention can be geared toward producing quality products, developing integral relationships, and implementing marketing strategies that boost and support the business’ objectives.
With the numerous tasks that come with operating a business, it’s not astonishing that business taxes aren’t at the top of the list of priorities for many proprietors. You can avoid making common tax mistakes by allowing a professional in tax planning to provide expertise and tax advice that prioritizes your company’s financial and compliance needs.
Contact me for your virtual or hands-on business tax consultation at JeffreyLevine.Solutions today!