Taxes regularly top an entrepreneur's list of concerns --a study on business optimism in January 2013 sponsored by the NFIB found that 24% of respondents listed taxes as their most pressing problem (Tweet This!). Starting and running a business is already expensive enough, and a looming tax bill just makes that financial burden worse. But before you start to panic, keep in mind that there are certain tax strategies new small businesses can use to help cut down their tax bill.
Claim start-up costs
Did you spend any money researching markets before starting your business? Did you pay your employees while you trained them? The IRS allows new businesses to deduct a portion of expenses incurred while preparing to start a new business. This deduction can be up to $5,000, but it can only be elected for the tax year in which your business started, so make sure you elect it when you can.
Don't overlook Section 179 deductions
Section 179 is a provision of the tax code that is meant to spur investment by allowing businesses to write off some major purchases. For the last few years, the deduction's limit has been increased to $500,000, but it is set to fall back to $25,000 in 2014. If you made any major purchases for your business last year, now is the time to deduct them. There many different types of property covered by Section 179, but the most common to new small businesses are office equipment, computers, off-the-shelf software, and business vehicles.
Any courses you took or books you've read to become more effective at your job are potentially tax-deductible education expenses. For example, if you run a business and decided to take a refresher management course at the local community college, the course fees and cost of books can be deducted as education expenses. However, eligible education must be undertaken to maintain or improve your skills in your current career, so that microwave cookery course doesn't count.
Buy health insurance
While the Affordable Care Act has seen its fair share of controversy, it could actually help cut down on your tax bill. Businesses with more than fifty employees are, for the most part, now legally required to provide health insurance to their employees. However, if your business has fewer than 25 employees that earn less than an average of $50,000/year, you can claim up to 35% (set to increase to 50% starting in 2014) of what you paid to insure your employees. There are plenty of small businesses that offer health insurance as part of their benefits package, so this credit can be a real boon. Alternatively, if you're self-employed and have no other employees, you can deduct premiums paid for medical, dental, and long-term care insurance for you, your partner, and your dependents.
Invest in retirement
Money invested in retirement plans is money you can deduct from your tax bill. In fact, one of the best tax write-offs available to small business owners and the self-employed is a retirement plan. If you don't have any employees, you can set up your own 401(k). For 2014, you can contribute up to $17,500 plus 25% of your net income as a 401(k) deferral. If you have employees, you can also take advantage of the tax-breaks offered for SIMPLE IRAs or SEP IRAs. Both allow you to deduct whatever you contribute to your employees' IRAs as a business expense. You can even deduct up to $500 of the cost of starting your retirement plan!
There is absolutely no reason why you'd ever want to pay the IRS more than you have to. So, when you're filing your returns, make sure you review the numbers and pinpoint every possible deduction. What did you buy for your business? Did you take any developmental business classes? How much did you spend before opening your doors? And, in the coming years, consider offering tax-deductible perks like health insurance or retirement plans. Hunting down and itemizing expenses might seem like a lot of work, but in the long run these deductions can save you a lot of money.
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