Small businesses are an integral part of the fabric that makes up a vibrant, economically healthy society. As such, it is important to do what you can to help them thrive. This article will focus on tax deductions that small business owners should know about.
- Charitable Contributions
You can take a tax deduction for any money you donate to charity. For example, if you donate $1000 and your tax rate is 25%, you can deduct $625 ($1000 * .75) from your taxes. If that money went to a foundation and is used for charitable purposes, you can deduct even more.
- Self-Employed Health Insurance Deductions
Unlike other businesses, individuals need to buy health insurance for themselves and their family members who work for them. If you choose to opt-out of purchasing health insurance for yourself and your employees, then you will be able to deduct half of the amount that you would have paid.
- Business Expenses
There are many expenses that small businesses incur when they operate – things such as Internet access, computers, software licenses, and buildings need to be taken into account when figuring out which expenses can be deducted. Many of these items can be deducted immediately – even before taxes are calculated. Deductions for business expenses can be taken for the first year your business is in existence.
- Travel Expenses
If you are required to travel for business purposes, you will be allowed to deduct 50% of your expenses incurred – even if you did not include these amounts on your taxes. For example, if you spent $250 in gas and your mileage is recorded at 15 miles per gallon on the way to a meeting, the deduction would come out to $125. This deduction can also be included in employee benefits.
- Contributions to Retirement Plans
Small businesses often offer retirement plans to their employees. If you are self-employed, you can set up your retirement plan and deduct contributions that you make on your behalf and on behalf of your employees. This deduction can be taken as a business expense or compensation deduction. If the plan is set up after taxes have been calculated, then you can take a tax deduction for the amount you would have contributed if it was deducted from your income in the previous years.
While taxes are the bane of most business owners, they can be minimized by taking advantage of these tax deductions. As always, you must understand what is allowable and what is not. It is also important to consult a professional before taking any of these deductions.