As the year quickly comes to a close, small business owners are already a step ahead of things by considering all the ways they can reduce their taxes by taking deductions and using smart tax tips. Nolo estimates that the average savings can add up to as much as 43% of your earnings, which can drop your business into a lower tax bracket. But, where should you start when there are so many opportunities to reduce your tax liability?
Here is a handy small business guide for understanding what deductions and tax credits you need to gather before the year ends – including some new tax tips for 2017 you may not have heard of!
EQUIPMENT EXPENSES GET MORE CREDIT
Thanks to the American Recovery and Reinvestment Act, Section 179, businesses may now take deductions up to $2 million annually for things like computer equipment, office furnishings, off-the-shelf software needed to operate the business, and even used equipment. Tax deductions up to 50% can be taken in the first year, when previously they were subject to amortization schedules. Be sure to keep track of all expenses by maintaining a file for all scanned receipts.
SMALL BUSINESS LOAN INTEREST DEDUCTIONS
Using small business loans to increase working capital in your business is always a smart move. But did you know that the interest payments you make with each monthly payment are tax deductible? This is because the interest rate you pay is considered to be an actual business expense. However, please note the following tax tip: This tax deduction doesn’t start until you actually start to spend the small business loan for actual small business reasons. If you keep the money in a bank account and don’t use it, the interest paid on the money doesn’t qualify as an expense, although some would argue it’s an investment expense.
WORK OPPORTUNITY CREDIT INCREASED BY 40%
In 2017, small businesses that participate in programs that put certain long-term unemployed and military veterans into good jobs can expect an increase in the tax credit they can claim. The IRS reports increases of 40% of the first $6,000 in wages that each eligible employee earns to be exact. Tax tip: there are added incentives for companies that offer workforce training programs that help people learn new career paths.
CREDITS FOR PROVIDING HEALTH INSURANCE BENEFITS
If your small business has at least 25 employees and provides group health insurance for employees, (or pays at least half for employees who purchase their benefits through the marketplace), one tax tip you need to be aware of is that in 2017, income limits for each full time employee increase from $50,000 annually to $52,000 annually. Tax credits vary, but the IRS says that, “The amount of the credit you receive works on a sliding scale. The smaller the business or charity, the bigger the credit.”
EXPENSES FOR STARTING A BUSINESS
Did you start a small business this year? The good news is that the expenses of starting a company can be deducted, and this year up to $5,000 of expenses that occurred before the business was officially launched can be included in full. The Small Business Administration provides this tax tip: Make sure to keep good records of all start-up expenses in order to maximize this credit. What’s included? Small business advertising and professional service fees, equipment and supplies, and taking out a small business loan to purchase a business. If you buy out another company or have to take any special training to prepare to go into business for yourself, consider the expenses that are incurred here too.
Did you know that 77% of small businesses earning less than $250,000 per year give generously to charitable organizations and causes each year? The Chronicle of Philanthropy reports that women-owned businesses give more than men do, with women inclined to give 6 percent of the top 10% of their profits and 1% of men giving that much. The best tax tip we can think of is to give from the heart, but keep track of these donations and be sure to claim them on your business taxes as a credit. This includes volunteer service, donations of money and tangible goods, and mileage and travel expenses for engaging in charitable work.
EMPLOYER – PROVIDED CHILD CARE TAX CREDITS
If your business pays for the child care expenses for employees, it’s eligible to take a tax credit of 25% pf these expenses up to $150,000 per year. Employees can also take advantage of child care tax credits and flexible spending accounts to help defray the cost of having their children in licensed day care centers or getting care at home from a qualified babysitter. Each year, gather all statements that show any child care fees paid directly by your business for each child so that you can get the maximum credits. Remember, the business can also subsidize a portion of the cost of child care and the credit covers the amount spent on these fees.
BENEFITS FOR EMPLOYEE EDUCATION AND TRAINING
According to the 2016 State of Small Business Report, 27% of small businesses were investing in employee education and training as a way to boost revenues. A tax tip that can help your business achieve this goal is to offer educational benefits to employees who can then use this knowledge to increase your bottom line. The IRS allows up to $5,250 in educational reimbursement per employee per year. This can be an attractive incentive to retain your most productive employees and raise standards for all employees to become life-long learners.
There are many ways to take advantage of tax tips like these to save your company money during tax time. Remember to keep accurate records of all financial transactions, including the fees you pay for running your business, buying equipment and inventory, hiring and compensating employees, and obtaining new forms of business capital.