Tax season can often be stressful for small business owners, and the idea of paying a chunk of money to the government is not always pleasant. However, there are lots of ways to get tax deductions that are always worth looking into if you run a small business. Many tax benefits that could help you save money when tax season comes around are overlooked, meaning you could be paying more than you need to.
Research and Development Tax Credits
If your business develops new products and processes, then you may be eligible for the research and development tax credit. According to R&D Tax Credit Studies, this is a federal incentive for businesses to invest more in new product and process development, with the main purpose of keeping the US competitive globally. Since research and development can be expensive and often risky, this tax credit is designed to help companies by lessening the strain.
Deduct Travel Costs
Many business owners will collect points on travel cards in order to save later on by using them for vacation flights and hotel bookings. However, doing this could mean that you are actually not saving as much as you could when it comes to travel. Business travel costs can be fully deducted as a business expense from your taxes; however, the same doesn’t apply to personal travel costs. Instead, it’s a better idea to save up frequent flyer points for vacation travel, while taking the full tax deduction for the cost of business travel.
20% Business Income Deduction
There is a twenty percent business income deduction for company owners who report their operations on Form 1040, under tax reform. For small business owners, taking advantage of this can lead to a big saving, as around $20k of $100k business income is tax-free. Taking advantage of this deduction is an ideal way to ensure that you keep more of your earnings tax free.
Work Opportunity Credit
This is a credit that is available to any business that pays first and second year wages to specific targeted employees such as summer youth or veterans. The credit is worked out as a percentage of the wages that you pay to the employee and could be anything from $2400 to $9600 per employee depending on the type of staff you hire.
Claim Back Start-Up Costs
A $5k write-off for any start-up costs is allowed as a way to encourage people to open a new business. If you are in the process of setting up a new company, then it’s worth taking advantage of this break. Startup costs include any money paid to create or to acquire a new business or trade. This could include the cost of travel and further essential costs to secure customers, suppliers or distributors, the cost of advertising the opening of the business, and more.
Tax season can be stressful for business owners, but the good news is that it doesn’t have to be as expensive as it seems. Make sure that you’re aware of any tax breaks you’re eligible for and know what you can claim as an expense.