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Lower Your Business Tax Liability: Did You Miss These 6 Deductions?

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Planning ahead and understanding the various deductions available are key components that help lower your business tax liability. For business owners, it is important to understand their tax liabilities and maintain compliance with regulations. This article will provide long-term tips to help business owners lower their business tax liability with deductions. Knowing which deductions are available, how they are applied, and the impact they have on taxes can be a daunting task. However, understanding these deductions and taking advantage of them can save businesses a significant amount of money on taxes each year and even result in multiple years with a lower overall tax bill. Home Office Repairs, Alterations Your deductions for your home office don’t stop at the new laptop or computer desk. Repainting, re-flooring, and adding new or different lighting fixtures – all of these things are deductible if you are using the repaired or renovated part of your home for your work activities. When it comes to business expenses, many people overlook the things that seem “outside” the norm when it comes to tackling what is deductible and what isn’t. But remember – if you redid the flooring in your entire house and you only use 10% of its square footage for work, you can only deduct that amount, not the full renovation cost. It may even be beneficial to space out renovations in your business spaces over a few years if you’re able. This can help with tax planning and will lower your business tax liability for a longer amount of time. Research and Development R&D is a core component of your business. Whether you are testing new inks for a t-shirt printing business or creating new inventory software for your corporation, you have to do quality research and development to keep your business thriving and growing. These R&D tax credits (which were recently doubled via the Inflation Reduction Act) can reduce your tax liability dollar for dollar, up to …

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1099 Write-Offs You Probably Didn’t Know About

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We previously shared common 1099 deductions, so in preparation for tax season, we wanted to share 1099 write-offs you probably didn’t know about. 1099 Write-Offs You Probably Didn’t Know About Business startup and organizational costs If you started your business this year, you can write off many expenses associated with starting your business. In business terms, these are known as startup costs. In tax terms, these are known as investigation costs. Startup costs include:  Advertising Acquiring an existing business Consultant fees Customer surveys Equipment costs Leasing a business property Market research  Product research Site selection costs Wages and salaries for training Similarly, you can also deduct many organizational costs. These are the costs of forming your organization – specifically, a corporation, LLC, or partnership.  Organizational costs include: Accounting fees Legal fees  Organizational meetings Partnership filing or incorporation fees Temporary directors To deduct the costs above, make sure the fees you are writing off are only applicable to forming your organization. Other accounting or legal fees do not apply here. Cell Phone Costs  If you use your cell phone for personal and business purposes, then you can deduct a portion of your cell phone bill costs from your taxes.  To do this, estimate the percentage of your cell phone plan that is used for business purposes, and then write off that percentage. You can review your phone usage for a typical month and then average that for the entire year. Commission and Fees Some commissions and fees can be written off. However, when and how they can be deducted varies. Commissions and fees that are considered capital expenses must be amortized, which means spreading them out over 15 years, which includes these types of commissions and fees: Getting a lease on a business property  Issuing and selling stock or securities …

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8 Common Tax Myths

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Taxes are complicated and confusing for non-professionals. We wanted to take some time to dispel the most common tax myths for you. Myth: Tax Filing is Voluntary When it comes to tax filing, the word “voluntary” doesn’t mean you only have to file if you want to. It simply means you are responsible for calculating (or hiring someone to calculate) the correct amount of taxes you and/or your business owe. The only people not required by law to file their taxes are those individuals who make too little income to file. Myth: Cash Transactions Don’t Have to Be Included in Your Taxes There is a reason many cash transactions are dubbed “under the table.” No matter whether there is little to no paper trail for a transaction, income is income and should be reported on your taxes for the applicable year. Myth: You Can Claim Home Office Deductions As a Result of the Pandemic Many people found out the hard way when filing their 2020 taxes that just because you have a home office does not necessarily qualify you for home office deductions. From tax years 2018 to 2025, whether your employee requires it or you request it, employees who work from home (not independent contractors, freelancers, or small business owners) can no longer claim the home office deduction. While many government and tax programs were amended to make exceptions for pandemic-induced hardships, the home office deduction was not among those amendments. Myth: Filing for an Extension Will Put You at Higher Risk for an Audit Many people are told that if you file an extension on your taxes, you are more likely to be audited. Studies have shown, however, that there is no correlation between extension filing and audits conducted. You can rest easy knowing that your extension is just that – an extension. Myth: Your Fur Babies Can Be Claimed as Dependents Even if they eat at the kitchen table and have their own bedroom, you can’t claim your pets as dependents. But here are some great tax deductions …

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Deductions 101 for Small Business Owners

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Every small business owner knows that they need to take advantage of deductions around tax time, but what are deductions? And how are they beneficial?  Deduction Basics A tax deduction is a reduction of taxable income based on certain business-related expenses that you can claim on your taxes, such as rent, business-related subscriptions, and travel.  Put simply, deductions can reduce your business’s total amount of taxable income. By claiming a deduction on your business taxes, you end up paying less to the federal government.  Tax deductions are also called “tax write-offs” or “write-offs.” Deductions vs. Tax Credits A tax credit is an incentive for a business to strengthen the economy, enhance people’s lives, improve society, and improve its industry in some way. Tax credits are offered by the government in an effort to reward businesses for doing good in their community and in the U.S. at large.  In short, deductions are based on expenses while tax credits are based on societal improvements. Deductions reduce the total amount of income that your business is taxed on while tax credits reduce your tax bill.  Tax credits benefit businesses dollar for dollar, while deductions benefit businesses by a percentage depending on your tax bracket. In general, tax credits are more valuable to businesses in lower tax brackets, while deductions are more valuable to businesses in higher tax brackets.  Both deductions and tax credits can help your business pay a smaller tax bill, so it’s important to work with a tax preparer to ensure you’re taking advantage of all of your options. Unsure where to start? We cover that here. To learn more about tax credits, read this article by FreshBooks.  Is There A Master List of Deductions? Surprisingly, the IRS does not have a master list of small business tax deductions. Instead, they provide a general rule of thumb for small business owners: To be deductible, a business expense must be both ordinary and …

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2021 Tax Prep for Small Businesses

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Tax season is a good time to think about tax preparation for the next year. There may have been unforeseen obstacles you encountered with filing this year that you can avoid next time.  Since many of us are working from home due to stay-at-home orders because of the pandemic, our new reality will shift our tax preparation process, so it’s important to start noting changes and differences now, before you go to file.  Now that your 2019 taxes are filed, it’s time to start preparing to file your 2020 taxes in 2021. We’ll take you through the step-by-step process on how to do just that. File the right tax return for your business Know your tax filing deadline Gather your records Look for tax deductions Deduct your estimated tax payments File your taxes File the Right Tax Return For Your Business There are different tax returns based on the size and needs of your business. Choosing the right tax form depends on how you operate your small business.  Sole Proprietorship Schedule C Schedule C-EZ, Form 1040 (individual income tax return) Limited Liability Company (LLC) Form 1065 (return of partnership income) Form 1040 (individual income tax return) Schedule C (a Schedule C is only used if one person owns 100 percent of the LLC business)  Partnerships  Form 1065 (return of partnership income) Form 1040 (individual income tax return) S Corporation Form 1120S (income tax return for S corporation) Form 1040 (individual income tax return) Schedule K-1 (individual owner shares) Additionally, the IRS requires businesses who made or received payments for certain transactions to file an information return. Information returns are not income tax returns but are a requirement for reporting purposes to assist other taxpayers in preparing their return. Examples include: 1099s, 1098s, 1095s and W-2s. Know Your Tax Filing Deadline Although the IRS extended the deadline this year for …

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