Small and Medium-sized are both the lifeblood of our economy and a crucial part of the American Dream. However, most of the industrious people who run these companies have neither the time nor proper understanding of the tax code to correctly prepare their business taxes even with the assistance of software.
It might be tempting to shelve tax-related issues until April, but this is highly unwise. It is smart to have the right tax professional by your side from the beginning to look out for all the unexpected issues that often plague small business accounting.
Equipment and Furniture
Section 179 is a tax law that allows 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 it is under$2.5 million if it was financed or purchased in 2018.
Qualified assets for Section 179 include:
- Machines or equipment purchased for business use.
- Office furniture.
- SUVs, pickups, and vans weighing more than 6,000 pounds.
- Certain improvements to the interior of commercial property.
Read our handy article Tax Deductions that Every Small Business Owner Should Know to find out about more money-saving tax deductions.
A self-employed person can deduct the premium of various types of business insurance. This can include:
- Worker’s Compensation
- General Liability
So, if a self-employed person uses their vehicle for 100 percent business use and the vehicle is in the company’s name, then the car or truck is fully deductible.
If the vehicle is in your money-savingname and used partly for personal, partly for business use, then there are two ways to calculate the deductions
Track your actual car expenses, including gas, maintenance, insurance, and depreciation, and deduct a percentage supported by the number of business miles you drive.
Deduct a typical rate on each “business” mile driven for the year. For 2020, the quality mileage rate is 57.5 center per mile driven for business use, down from 58 cents per mile in 2019.
No matter which method you select, you will have to keep track of what percentage of business and private miles you drive. You can use a manual log or an online app.
Business Travel Expenses
The Internal Revenue Service defines a business expense as the ordinary and necessary expenses associated with traveling away from your home for your business, profession, or job. These expenses cannot be extravagant or used for personal purposes.
The following are valid business expenses:
- Travel by airplane, train, bus, or car between your home and your business destination. (If you’re provided with a ticket or you’re riding free as a result of a frequent traveler or similar program, your cost is zero.)
- Fares for taxis or other types of transportation between the airport or train station and your hotel, the hotel, and the work location, and from one customer to another, or from one place of business to another.
- Shipping of baggage, and sample or display material between your regular and temporary work locations.
- Using your car while at your business destination. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking fees. If you rent a car, you can deduct only the business-use portion for the expenses.
- Meals and lodging.
- Dry cleaning and laundry.
- Business calls while on your business trip. (This includes business communications by fax machine or other communication devices.)
- Tips you pay for services related to any of these expenses.
- Other similar ordinary and necessary expenses related to your business travel. (These expenses might include transportation to and from a business meal, public stenographer’s fees, computer rental fees, and operating and maintaining a house trailer.)
Do you properly understand how to handle your cash flow? Are you going to pay taxes purely based on
What is available in your checking account? Many business owners do not realize that their available cash is not the same as the company’s net profit.
Are you sure that you have chosen the proper business organization? The type of organization has a strong bearing on your tax structure and you should make sure your organization utilizes the best tax structure for your business needs. Having a small business tax professional look over the Consumer Price Index is a good way to understand your business should be properly structured.
Are you confident that your independent contractors have not become employees during the tax year? Did you provide them with the right forms? Businesses need to understand how to properly document all those who have done work for them and the Internal Revenue Service or IRS regulations on such matters can be very perplexing.
Tax Resale Certificates
Up until now, we have been primarily talking about deductions at the level of the Federal government. It is important to also remember that there can be many money saving deductions at the state level as well.
A tax resale certificate is a signed document that indicates that the purchaser intends to resell the goods. In some states, resale certificates are also used to purchase taxable services that become a part of the property for resale.
Tax resale certificates can provide great savings that are fantastic for a business’s bottom line. However, the rules and regulations can vary greatly by the state which may cause a lot of confusion. Luckily some websites take the headache out of the process.
You can read our handy article titled Everything You Need to Know About Tax Resale Certificates to get a comprehensive understanding of how they save your business money if you are a seller of goods. Visit taxresalecertificate.org to apply for your resale certificate as soon as possible.
We know how hard you have worked to start up your business. Being knowledgeable about tax deductions can help keep your hard-earned profits in your business so you can grow and thrive. Once again knowledge is the greatest asset one can have on the path to success.