Every tax season, small and medium business owners overlook tax deductions that can save thousands of dollars. This could be because of lack of knowledge or understanding of tax laws, or because you’re just so overwhelmed you rush past money-saving opportunities in the race to the tax collector.
Here are five tips all business owners should consider come tax time to be productive and efficient.
Understand Deductions
Brett Beveridge, attorney with Chamberlain Hrdlicka, says his top piece of advice is to use as much of the IRC Section 179 benefit as possible, which allows businesses to deduct up to $500,000 of their cost for new equipment instead of capitalizing the cost and depreciating it over time. “Immediately deduct software development costs, including costs to install and implement new software,” he says. “Also, favorable rules apply to those who have been in a disaster area, and small businesses may be able to deduct a loss for the damage suffered in a storm, fire, theft, flood or other event.”
Seek Help
With tax laws changing over time, the most important thing to do is get someone who can help you. Consultant Derrick Handwerk, managing partner of Handwerk Multi Family Office, notes profitable small businesses have plenty of opportunities to avoid tax—but many have no idea how. That’s why collaboration with a tax pro is recommended. “The biggest mistake is not having a proper tax advisor,” he says. “Not all CPAs are tax experts, some just produce tax returns given the info from the client.”Â
Be Secure
David Martin, vice president of VeriFyle, notes too many small businesses share their tax information using unsecure methods such as email or free file sharing services. “While these options may be convenient, they are easy targets for hackers,” he says. “There are solutions out there for sharing information more securely that are as simple to use as email and very affordable. From a security perspective, and peace of mind, the little bit of extra effort is definitely worth it.”
Take Advantage of a 401(k)
It can be easy for business owners to get bogged down in day-to-day operations and forget about long-term financial security. According to Capital One’s recent Spark Business Barometer, roughly eight-in-ten (83 percent) small business owners are “confident” they are taking advantage of available tax deductions, but only seven percent of small business owners say they deduct 401(k) plan benefit expenses. “Many SBOs don’t realize how setting up a 401(k) plan can reduce their personal and business tax sticker shock,” says Stuart Robertson, president of ShareBuilder 401k. “There are also straightforward, low-cost 401(k) plans designed for small businesses that enable owners and their employees to make tax-deferred contributions and build a retirement nest egg.”
Understand the Health Care Law
The Affordable Care Act has expanded to include businesses that have 51 to 99 prior-year full-time employees. “Form 1095-C must be completed by employers to indicate what coverage was included in their health plan offerings, plus the cost of the insurance to the company must be added to the employees’ W-2s,” says Mark Jaeger, director of tax development at TaxAct. “However, that cost amount does not count as income for the employee so therefore it is not taxable.”
Tax planning isn’t easy, so be sure take your time and look into anything that can help your business in the long run.
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