The tax code is complex and frustrating, but it’s the perfect legal approach to reducing your tax liability. Joseph Andolino served as the Vice President at Goodrich Corporation, and Coltec Industries for more than 17 years. As an expert, he constantly reminds the small start-ups that by utilizing all the deductions your business is eligible for you could keep more profit and give less to Uncle Sam.
Imagine if the IRS wrote the tax code in plain English. Most people could minimize tax bills and operating a small business would be far less painless. As it stands now, most business owners toss away the opportunity to place thousands of dollars back in their pockets. One of the best pre-planning techniques for a small business is often the most widely-ignored.
Even the simplest start-up soon finds the need for specialized advice on critical aspects of the business.
Here are 5 of the top deductions many businesses can apply right now;
1. Work opportunity tax credit: For more than a decade, the government has offered tax credits to companies that hire welfare beneficiaries, disabled people, at-risk youth, ex-felons and veterans. President Obama has expanded the law, increasing the category of individuals eligible for these benefits. The objective is an incentive for companies to hire disadvantaged candidates. Employers can get tax credits between $2,400 and $9,000.
2. Start-up deductions: Thinking of starting up a business? You can deduct up to $10,000 of your start-up expenses. These typically include deductions like research, promotion and marketing costs, and any supplies and expenses before the doors open. Businesses can choose to deduct or amortize certain start–up costs.
3. Home office: Millions of businesses are operated from home, opening the door for a wide range of depreciation and deductions. Approximately 1 in 4 households have a home office, yet many do not claim a lot of deductions. You can legally claim a home office deduction if you meet three qualifiers:
- It is your principal place of business
- You have an identifiable space that you call your office. This doesn’t have to be limited to a full room; it can be a fraction of a room.
- The area is exclusive for your business, meaning it cannot double as a child’s play room.
If you qualify for a home office deduction, based on the square footage, you can deduct a portion of your mortgage or rent. This also extends to a portion of your electricity bill each month, and any other utility bills.
A home business can be a terrific tax shelter, as long as your goal is to make a profit. If the business loses money, simply offset your income. When it doesn’t always pan out, a home based business can still be a tax benefit.
4. Affordable Care Act: an impressive new tax credit for the small business owner who offers health insurance to their employees. Businesses with less than 25 full-time workers who average salaries are less than $50,000 can receive a tax credit up to 35 percent of the health insurance cost they provide for their employees. For a business to qualify they must pay a minimum of 50 percent of the employee’s health insurance premiums. The size of the tax credit will increase in 2014.
5. Bad debts: Did you deliver work to a client and they failed to pay you? For the past few years, many small business owners have taken a dent in income when clients couldn’t pay up. Rarely do small business owners, especially home-based businesses, utilize this tax deduction. A bad debt is deductible if you declare income. For example: You invoiced a client in December 2012 and you have declared all income derived on your 2012 tax return. The client has refused to pay you and you realize it’s a done deal, and you stop the chase. You can declare that invoice bad debt and take a bad debt deduction.
Becoming tax savvy is a money-saving opportunity for businesses to utilize the tax law and keep more of their hard-earned money.