Is your small business maximizing its deductions? 5 things to capitalize on this tax season

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When you own a small business, tax season can be a stressful time. However, you can lower your tax liability by maximizing the small business tax deductions you claim against your income. Here are five small business deductions you need to remember when you prepare your taxes this year.

1. New furniture and equipment.
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Small businesses are always purchasing new furniture and equipment. Luckily, these expenses can lower your tax liability if you know how to handle them. In most cases, you will be able to decide whether you want to deduct the full amount of these expenses at once or depreciate the expense over a number of years.

If you decide to claim the entire expense in a single year, you will need to claim a Section 179 deduction. The cap on this deduction for 2016 is $500,000. If you choose to depreciate the expense, on the other hand, you will use charts prepared by the Internal Revenue Service to calculate the deduction each year.

 

2. Mileage.

If you drive your car for business purposes, you may be able to deduct some of the cost of the vehicle's operation from your business income. In order to qualify for this deduction, you must keep careful records of your mileage and expenses during the year.

The IRS offers two different options to taxpayers deducting expenses for a business vehicle. Either you can use your actual expenses to calculate the deduction, or you can calculate it based on the number of miles you drove for business purposes.

 

3. Travel and entertainment.

Many business owners travel throughout the year. If you travel for business purposes, you can deduct the entire cost of your hotel, transportation, tips, dry cleaning and any other necessary expenses. However, you may deduct only 50 percent of the cost of your meals.

If you entertain business clients during the year, you can deduct some of these expenses as well. However, the deduction is limited to 50 percent of the cost.

 

4. Insurance premiums.

If you are self-employed and you pay your own health insurance premiums, you may be able to deduct 100 percent of these premiums from your taxable income. However, in order to qualify for this tax break, you must not be eligible for any other health insurance plan, including plans available through your spouse's employer. In addition, the deduction you claim cannot exceed your net income for the year.

 

4. Software.

In today's world, business owners need to purchase a variety of software programs and subscriptions in order to function efficiently and keep up with their competitors. Fortunately, small business owners can usually deduct these expenses from their taxable income, so be sure to keep your receipts.

For more tax tips or professional help with your return, please contact Padgett Business Services.


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Topics: Small Business, Tax Season, IRS, Financial Records, Small Business Tax, Tax Scams