5 Tax Deductions for Small Business Owners
Owning and running a small business is hard. Being profitable is hard. Luckily the IRS gives us a couple breaks. Are you leaving money on the table by not taking these tax deductions?
1. Home Office
Measure your work area and divide by the square footage of your home. That percentage is the fraction of your home-related business expenses — rent, mortgage, insurance, electricity, etc. — that you can claim.
2. Office Furniture and Equipment
Section 179 is a provision in tax law that enables business owners to deduct the full purchase price of qualified equipment from their gross income. Rather than deducting a certain percentage of the equipment under a multi-year depreciation schedule, as is customarily done, business owners can deduct the full price, as long as they limit expenditures to a spending cap of $2.5 million if it was financed or purchased in 2018. In 2017 the spending limit was $2 million.
If you drive for business, the IRS wants to give you some of your money back. You’ll need documentation, so keep a notebook in your vehicle to record the date, mileage, tolls, parking costs and the purpose of your trip.
At the end of the year, you have two choices:
Total the mileage and add in the tolls and parking to calculate your deduction. Once you have your mileage total, multiply it by 54.5 cents for your 2018 deduction.Measure your business usage against your personal driving and deduct that portion of your auto-related expenses. Remember to include gas, repairs and insurance.
If you are leasing, include those payments.
If you are buying the car, factor in the interest on your loan and depreciation on your vehicle.
If your company’s office is at your house, you can deduct the entire business-related mileage, from the minute you pull out of the driveway until you return home.
If your business is not home-based, your mileage meter starts at your first business-related destination and ends at your last. You can’t include the drive to and from home. In this case, try to schedule several business appointments on the same day to allow you to take the mileage between stops as a tax write-off.
4. Insurance Premiums
Self-employed and paying your own health insurance premiums? These costs are generally deductible, but not in all instances.
This break primarily benefits proprietorships, but there are limits. The deduction can’t be more than your business’ net profit. And it’s not allowed if you were eligible for other health care coverage, including that offered by your employed spouse’s medical plan.
You also can include some of the premiums you pay for long-term care insurance for yourself, your spouse or dependents.
5. Child Labor(no really)
If you hire your children as employees at your business, you may be able to deduct their salaries from your business income if they meet certain requirements.
Also, there is no Social Security or Medicare tax when you hire your child who is 17 or younger, and there is no unemployment tax (known as FUTA) for children under 21.
This break is available, however, only if you operate as a sole proprietor or as a partnership in which you and your spouse are the only partners. If your business runs as a corporation, then it, not you, is considered the employer and the corporation is not relieved of the tax liabilities.
So there you have it. 5 deductions that small businesses should be taking if they aren’t already. Small Business is what we do. If we can help in any way, please let us know.