Paying taxes is an obligation of every law-abiding citizen. During the tax returns filing period, every business owner and individuals are engrossed with returning their taxes. It is not an easy task, with some spending a lot of money hiring various agents to help them file tax returns.
Tax deductions for small businesses
Small businesses equally have the burden of returning taxes. They are not exempted from tax. However, many may not have known that there are easy tax deductions for small businesses. There are several waivers and deductions that can significantly reduce the amount of tax paid by small businesses. It is, however, unfortunate that many owners of these small businesses are in the dark about this. There are several tax deductions that have been implemented to cater for the small businesses. One of the legislations that have been put in place to cushion small businesses from paying hefty taxes include the Small Business Jobs Act.
Most commonly overlooked Tax deductions
- The Home office deduction
It has been found out that out of the over 23.4 million sole proprietors who file tax in a year on average, only 7.6 million of them claim a home office tax deduction. This translates to only 32 percent of small business owners in that year. Slightly more than half of sole proprietors operate their businesses from their home meaning that a significant number fail to claim for this prestigious tax deduction.
- Healthcare Tax Credit
Business owners with enterprises that pay for health care coverage for their staff are eligible for this tax deduction. The requirements are that the business should be paying healthcare cover for at least half of its employees. The tax credit given in this case is up to 35 percent of what the business spends on the health insurance premiums. When a business has less than ten employees earning less than $25000, it is likely to get more credit. The credit has of late been raised up to 50 percent and can significantly reduce the tax paid by small businesses.
- Startup costs
Small businesses can also get deductions in tax for any costs they incur before officially starting their business. These may include costs incurred in exploring the business opportunity among other costs. The law to this excludes such business from paying tax during the first year the business is operational.
The deductions can be up to $5000 of the costs that business incur before commencing business transactions. However, there are certain limitations on this specific offer.
- Professional fees and Classes Deductions
There are numerous tax deductions also made to cushion small businesses associated with the day to day running of an enterprise. There are fees that small businesses pay for services such as legal advice and entrepreneurial skills. These can also be deducted from the tax such businesses should pay. Seminars, classes, and professional training are also captured under this deduction. Also classified under this category for deduction are membership fees for various business inclined groups.
- Depreciation on business vehicles
Transportation is a vital entity in small businesses. The depreciation costs on vehicles that small businesses purchase to use have a first-year deduction. Even if a business takes cheap car insurance, the tax deduction is still applicable. Maintenance of the vehicle is also deductible.
- Non-cash charitable deduction
Non-cash donations can be written off for small businesses. Al businesses need to do is give out to charity whatever commodities they have and get a receipt for the same. However, it is advisable that businesses do this during business hours. Whatever amount is receipted can be included under tax deductions for small businesses.
Small businesses can also enjoy tax deductions on hiring web designers and maintaining their websites. Expenses associated with the creation of logos, search engines marketers and website promotions once receipted are deductible from tax.
It is notable that a good percentage of small business owners have not been able to identify tax deductions that they could take advantage of. All taxpayers wish to have some deductions to ease the tax burden. Large businesses have had their share. Smaller enterprises should embrace this cost effective idea so as to lower their tax bills. It is high time that smaller businesses get more tax deductions by identifying options already available in the system.
By: Vincent Stokes