15 Must-Know Small Business Tax Tips

As a small business owner it’s important that you’re as smart as possible when filing your taxes, so check out these awesome small business tax tips!

Are you in the market for some small business tax tips?

Did you know 20% of businesses fail in the first year? Approximately 50% fail in first five. Of those businesses, three quarters attribute their failure to lack of capital.

If you want to increase your capital, lower your taxes. It’ll give you more cash on hand to funnel back into your small business. Make your money work for you.

In the following article, we’ll show you fifteen ways to save on taxes. Not all deductibles will apply to your business. Pick those which best fit.

Read on to find out more.

First-Year Bonus Depreciation

In 2018, the bonus depreciation deduction for first-year is changing. It was fifty percent; it’s now one-hundred percent. Instead of writing off a part of eligible equipment and property purchases, businesses can deduct the entire amount of the sale.

Lawmakers are giving businesses more cash on hand to either invest back in their company or hire more employees.

Corporation and Pass-Through Deductions

In 2018, businesses have an opportunity for significant deductions. These include both corporate and pass-through entities. The new bill provides a twenty percent tax deduction.

Pass-through businesses are S-corporations, limited liability companies, partnerships, and sole proprietorships. These businesses make up about ninety-five percent of all U.S. businesses.

(Service based businesses that net more than $315,000 a year may not qualify.)

C-corporations also qualify for huge deductions. New laws lower their tax rates from thirty-five percent to twenty-one percent. The goal is to attract major corporations back into the states to create new jobs.

Changes in Net Operating Loss

Starting in 2018, net operating losses (NOL) can’t be carried back two years. Instead, you can apply it for an indefinite amount of time, carrying it forward.

NOLs happens when a business’s deductions outweigh its taxable income. It’s a form of tax relief in which business owners can apply NOLs to future tax payments.

No longer can businesses restructure past taxes. They can now extend NOLs indefinitely.

Note: you can only apply new NOLs to eighty percent of your business’s taxable income.

No More Transportation Fringe Benefits

Two more changes took place in 2018. They are the elimination of entertainment expense deductions and of transportation fringe benefits. Employers may still provide both of these employee perks, but can’t write them off.

Use Payroll Tax Software

The IRS fines approximately one-third of small businesses for improper handling payroll taxes. Approximately forty percent of businesses try to handle payroll on their own, using paper or spreadsheets. They do it without help.

Taxes and payroll both incur serious charges for mismanagement. If you are uncertain, contact an expert, like www.ultimatetax.com, or use software built specifically for that purpose.

Separate Business and Personal Finances

Never commingle business and personal funds. Keep a separate credit card and business checking account for your business. When tax time rolls around, managing your books and deductions is simple. One for personal. One for business.

Some states require it. We recommend doing it no matter which state you’re in. That way, if the IRS audits you, you can produce legal documents which support legitimate business expenses.

Filing Systems 101

Accountants are organizational masters. They must be to do the vast amount of paperwork they file each day. Take a page from their book.

Get organized.

The primary reason people pay higher fines and claim fewer deductions is their own disorganization. Clean up your files, so you no longer dread tax season. Put in place a few changes in your monthly routine. Use the following tax-saving tips:

Create Your Filing System

Buy twelve expandable folders, one for each month of the year. Label each with a separate month. File your business receipts, withdrawal slips, deposit slips, etc. into respective folders

Block Out Time at Payroll

Block out an extra hour at payroll time. It doesn’t matter if you do payroll once a week, twice a month, or once a month. It doesn’t matter if you handle the payroll yourself.

The goal is to create a consistent time to organize your paperwork. It tends to help if it falls at the same time as something you already have built into your schedule. Every business has payroll.

When it’s time to sit down and flip through your paperwork, pull out your folder-of-the-month. Gather up your receipts. Match them up with your statements, bank accounts, and credit card accounts. Then file them away in your folder.

Remember Auto Expense Deductions

Yes, you can deduct car expenses if you use your automobile for your business. There are some regulations, most of which you can pass if you use your car to advertise your business. We recommend using a custom-made magnetic sign.

Make certain your sign includes your business name, logo, and business number.

Standard Mileage Rate

With this method, you multiply the total number of miles you drove (for business) by the standard mileage rate for that year. The number varies each tax year. In 2017, the standard mileage rate was $0.535 per mile.

Actual Expenses

You may deduct actual car expenses. These include things like insurance, gas, and repairs. If you use your car for business and personal reasons, calculate the percentage for each.

Multiply the total car expenses by the business percentage.

Example: Assume you drove your car 20,000 miles in total. 5,000 were business miles. The rest were personal. To derive the business percentage, you would divide 5,000 by 20,000.

This equals 0.25 or 25%. Then you’d take your total care expenses and multiply by 0.25. This would give you the car expenses for the business. (Aka, the expenses you could write off.)

Note: if you have trouble tracking your miles with pencil and paper, try out one of the new apps, like Hurdlr. They come with a variety of features, like auto start and stop capabilities. You can find similar apps in your native app store.

Deduct Meals

If you eat out with a client or potential client, you can write it off. You can deduct any meal during which you discuss business.

Be certain the meal isn’t extravagant or excessive. Otherwise, you can deduct anything that meets the above qualifications.

Treat your business expenses as if they were your personal expenses. Don’t dine at the most expensive 4-star restaurant because you can write off half the cost.

Hurray for tax tricks!

Consider Independent Contractors

Payroll taxes and benefits for employees add up quick. If your business can’t afford them yet, think about hiring independent contractors. You won’t need to worry about benefits or payroll taxes with independent contractors.

All contractors must sign a W9 form. It’ll give you all the information you need for your records. Send your independent contractor a 1099 tax form at the end of the tax year.

Set Up Your Retirement Plan

Retirement plans rock. They offer many tax benefits for your employees, business, and you. They include assets grow tax-free and employer contributions are tax deductible.

Business Structures

This is the first step you should take when you research hot to do taxes for small businesses.

Your business structure defines your tax structure. For example, C-corporation shareholders are taxed at the corporate rate. Then they’ve penalized again when they report distributions on their tax returns. They get double taxation.

Limited liability corporations, on the other hand, operate as pass-through entities. Owners and employees of LLC are only taxed once, at their ordinary tax rate. Sole-proprietorships run in a similar manner.

Use Bonus Depreciation

The “Path Act” extended bonus depreciation through the end of 2019. It gives the first-year depreciation of 50% of the cost of your qualifying 2017 business assets.

This depreciation is being phased out. It will go down to 40% in 2018 and 30% in 2019. After that, the bonus depreciation won’t apply.

Donate Unused Inventory

Do you have unused or unsold inventory? Great! Donate it and get tax deductions. Business donations of supplies, property, and even money are considered deductible expenses. Just be aware donations on goods greater than $500 have strict reporting rules.

Don’t Forget Your Startup Costs

Any expenses you incur before your first sale are considered “startup costs.” They can be deducted over a fifteen year period. You can also deduct the first $5,000 during your first year of business.

Note: you can only begin writing off these deductions after your first sale.

Deduct Your Home Office

Is your office set up in your home? Then write it off. Many small business owners don’t even realize they can write it off.

There are some restrictions. Your home office must be used only for activities related to your business.

While you’re thinking about it, write down a detailed list of your business habits and activities. Outline last year. Include everything you can remember–you might be eligible for further write-offs.

Take this list into your accountant when you see them. Have them check it over for deductibles you may have missed.

After Small Business Tax Tips

Now that you have a better idea how to save money on taxes, where do you go from here?

After you learn how to save money, the next logical choice is to take a closer look at how you make money. We recommend you investigate your marketing strategy. Tweaking your plan (even a little) could mean the difference between folding up shop and succeeding one more year.

If you want to streamline your small business further, check out the SMB articles on our site. We cover topics ranging from mobile development to warehouse shipping. Take a look right now, while it’s fresh in your mind.

P.S. If you want more small business tax tips, keep an eye on our blog. We post regularly!