Being a small business owner is no simple task. In fact, the vast majority of small businesses don’t last for long. According to an article from Forbes, 90 percent of start-ups fail. With stats like that, many would-be entrepreneurs may not even want to try.
With very thin profit margins, small businesses have to look everywhere they can for help. Thankfully, some help was written into the tax code by lawmakers. Make sure you take as many deductions as you legally can to bring down your small business’s tax burden. Here are a number of tax deductions nearly any small business can take advantage of.
The Home Office Deduction
A good number of small business owners can’t afford their own office space. Instead, they have to make do with their own homes by converting an existing room into an office. If this is the case for you, you can certainly deduct expenses for that office from your taxes.
Some people avoid this deduction because they are afraid it may result in them getting audited by the IRS. However, you shouldn’t worry. Unless you are actually being dishonest about your use of a home office, you have nothing to worry about. The rule of thumb that the IRS uses is that you can’t be using the room or the other equipment included in the deduction for anything other than business purposes. You can’t, for example, deduct your den or a computer used by your teenager.
Small Employer Pension Startup Deduction
If you are starting a pension for employees of your business in the current fiscal year, you can take a deduction. The deduction is limited to $500. However, it is certainly something you should take to help alleviate the costs of setting up a pension program. As outlined by the Department of Labor, there are a number of different small employer pension plans available. This includes 401k plans, IRAs, SEPs and SIMPLEs.
Qualified Research Tax Credit
To compete in today’s marketplace, a lot of research must be conducted. However, small businesses have far smaller budgets for important research and development projects that are needed to stay competitive. Despite this, according to a study, it was found that small businesses with 24 employees or less spend $3 billion a year on research and development. The government introduced a tax credit with this in mind. The credit is for qualified research expenses.
There are many different kinds of research that qualify. This includes research performed to develop new products and services. If you had to spend money to develop a prototype for a new product, you can deduct it. If you had to spend money applying for a patent, that can be deducted as well. Another common deduction is for research performed to insure a company complies with environmental regulations.
Company Vehicle Deduction
If you have a car that you use primarily for business or a vehicle that is legally owned by your company, related expenses can too be deducted from your taxes. There are two methods for deducting such business vehicle expenses. You can either keep track of all expenses related to the vehicle. Alternatively, you could deduct a standard rate for each mile driven with that business vehicle.
Be careful, however, to check exactly what car related expenses you are allowed to deduct. You may be able to deduct the cost of car insurance. However, the rules for auto coverage may be quite different than Delaware auto insurance. Do the proper research to avoid any problems. If you are still confused, consider calling the IRS help line.
Being a small business owner requires a lot of hard work. Keeping your business afloat can be very expensive with not much money left over to spend on anything else. With that in mind, the government introduced multiple different tax deductions and tax credits with small business owners in mind. Take these deductions and credits if you can.