Being an entrepreneur or a business owner requires knowing everything about your company, inside and out. So when the topic of taxes crops up, can you honestly say that you know everything about how to save on them? The whole tax return process can be a very daunting one to say the least, but small businesses need to keep a close eye on what they can deduct and what benefits are available to them so they can reduce what they are liable for. We are all looking for ways to save money, and when you are starting a small business, saving money is the name of the game! So use some of these methods to help make your business as cost-effective and tax-deductible as you can.
Use the Cost of the Startup as A Deduction
The IRS provides tax breaks for small businesses. You can deduct up to $5000 of your startup costs during the first year of trading. As a result, you can reduce your taxable income, which includes income tax and self-employment tax, which covers Medicare tax and Social Security. Other costs that you can deduct include the purchasing of supplies and equipment, and other operational fees. The remainder of the startup costs should then be depreciated over the course of 15 years.
Take Larger Deductions by Using the Deprecation Rules
If you buy a large item for your business, such as ones you use for more than a year, you cannot deduct the entire cost in that tax year. What you need to do is depreciate the item, and take a part of the cost and put that on your tax return when you efile each year. But what you can do is to use the special deprecation allowance to deduct a larger portion of the cost, and under this rule you can take 50% of the item’s cost as a deduction in the year that you purchased it. As well as this, if you purchased a business property, you can use the Section 179 Deduction, which can be used for all properties purchased for business purposes up to the value of $500,000. But this does not include rental properties. If you are wondering how to go about getting help in using the deprecation rules, you can approach a specialist for advice, such as tax law professionals at Mackay, Caswell & Callahan or any other tax lawyers.
Invest In Your Future: Contribute Towards a Retirement Account
After the shaky start to your business has evened out and a regular cash flow is coming in, you are able to protect more of your income from getting taxed. By contributing to a US IRA (Individual Retirement Arrangement) account, you are investing in your future and shielding more money from the taxman. You and your partner can contribute up to $5500 for the year without being taxed. In addition, as a self employed person, you can set up your own retirement account such as SIMPLE IRAs, which stands for Savings Incentive Match Plan for Employees, which gives you the opportunity to contribute as an employer as well as an individual, potentially doubling the amount of money you can contribute without being taxed.
