3 Secret Tax Advice for Small Business Owners
Overview
During the tax season, small enterprises seek methods to cut costs and enhance their eligibility for credits and deductions. David Ayoub, a certified public accountant (CPA) based in Syracuse, New York, highlights a frequently disregarded approach for tax savings, which commences at the start of each tax year. Ayoub recommends a straightforward strategy: retain all receipts. Organizing the scattered receipts scattered across your workspace, purse, or vehicle can translate into substantial deductions. Another uncomplicated yet often neglected deduction pertains to cash transactions, a common practice for many small businesses. Ayoub suggests maintaining a comprehensive log to monitor all transactions.
1. Keep the health credit for future use.
The healthcare tax credit is provided on a graduated scale. Small businesses with less than 10 full-time-equivalent employees, earning average wages below $25,000 per individual, experience the greatest advantage. To access the credit, employ Form 8941 to determine your qualification. If your business had no tax liability in that specific year, there’s potential to carry the credit into subsequent periods. Should any balance of the tax credit remain, you can offset it using eligible business expenses.
2. Claim deductions for section 179 property.
Small enterprises have the option to deduct the complete value of specific assets as expenses during the year in which they are first used for business purposes. This is known as section 179 property and can encompass a maximum of $1,080,000 worth of qualifying business assets during the 2022 tax period. Some examples of assets eligible for deduction include:
- Assets utilized in manufacturing, transportation, and production.
- Facilities employed for business operations or research.
- Buildings employed for livestock or horticultural product storage.
- Ready-made computer software
However, the following categories are not eligible:
- Land.
- Investment property.
- Land located outside the U.S.
- Lodging facilities.
- Buildings primarily used to house HVAC units.
Bonus Depreciation: The rules for bonus depreciation have been modified for assets acquired and placed in service after September 27, 2017. The prior 50% bonus depreciation remains applicable for assets acquired prior to September 28, 2017, provided they are new and not previously used. The new rules permit 100% bonus “expensing” for both new and used assets, with the bonus percentage decreasing to 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026. After 2026, no further bonus depreciation is available. It’s important to distinguish this bonus “expensing” from the expensing under Code Section 179, which has distinct regulations (refer to above).
The 100% expensing also extends to specific productions (such as qualified films, television, and live staged performances) and certain fruit or nut crops planted or grafted after September 27, 2017.
For the first tax year ending after September 27, 2017, there is the option to choose 50% bonus first-year depreciation over the 100% expensing.
Legacy Tax & Financial, Inc. can provide guidance in determining the appropriate property types that qualify for deductions.
3. Offset taxes with deductions for valuable stock donations.
Numerous small enterprises engage in charitable contributions throughout the year and subsequently deduct the contributed amount. Ayoub proposes an approach to optimize these contributions. He suggests, “Opt for donating appreciable stocks rather than cash. This way, your business can claim the present value of the stock during the contribution period, unlike the original purchase price of the stock.” To illustrate, if you offer a single share of stock acquired a year ago for $50 per share, and the stock’s current value is $100 per share, you can claim a $100 deduction during tax season. This grants you a deduction encompassing both the initial $50 cost of the share and the extra $50 representing its appreciation.
Connect with a dedicated tax specialist for small businesses at Legacy Tax & Financial Inc. Rest assured that our team of experts is committed to assisting your business in uncovering all eligible tax deductions and credits it rightfully qualifies for.