How Small businesses can Save Money on Taxes

Did you know your business tax liability will be one of your biggest business expenses? It is important to make sure that you always know what your business tax liability is for the year and what your plan is to offset those expenses. This guide will give you 5 ways to lower your tax bill before the end of the year. 

5 ways a small business save on taxes?

1st year depreciation of business capital assets rule

Did you know that there is a tax loophole that lets you write off the full value of certain business assets that you purchase? Ask your tax accountant about the Section 179 Rule. This Section 179 expensing helps simplify record keeping and helps you get the tax benefit of your investment sooner. For 2019, the deduction limit on Section 179 was $1,000,000, and the bonus depreciation was 100%.

Home Office Deduction

When you claim a home office, you deduct indirect and direct expenses. Direct expenses are those that apply only to your home office, such as painting or repairing just your office. You claim 100 percent of direct expenses. Indirect expenses include a percentage of the amount you pay for electricity, rent, and so on for your whole house. To find the percentage, divide the total square footage of your home by the number of square feet in your home office.

Bad debts

If someone owes you a debt that comes from operating your business, you may be able to take a deduction on your business return. If you use the accrual method in your business, you may have bad debts when customers buy things on account and then don’t pay you. If you use the cash method, however, as many small businesses do, you cannot generally take a bad debt deduction for uncollectible customer accounts.

Self-Employment Tax Deduction

When you’re self-employed, you pay the full Social Security and Medicare tax on your self-employment income. There’s no employer to share in the cost. To help compensate, the IRS allows you to deduct one-half of your self-employment tax as an adjustment to income on your tax return.

Self-employed health insurance deduction

If you have income from self-employment, and you buy your own health insurance, you may qualify to deduct your premiums as an adjustment from income. To qualify for the self-employed health insurance deduction, you must be ineligible for health insurance benefits through an employer – your own or your spouse’s.