Tax Deductions for Small Businesses

Tax Deductions for Small Businesses

             There are lots of tax deductions that a small business owner can utilize. This situation is much more complicated and valuable than for the average person working as an employee. Before you focus on the tax savings, remember that a business must be profitable to have a meaningful deduction to benefit from. Here are  several of the top tax strategies I recommend to my small business clients that are not available to an employee.

1. Home Office—If you have a home office out that is necessary for your business then your business should pay you a portion of all of your home expenses (mortgage, taxes, insurance, utilities, internet, cell phone, etc.)
2. The Augusta Rule—Famously named after the golf tournament in Augusta GA. This allows you to rent out your personal residence for upto 14 days per year without paying taxes on the rental income and the business can still deduct the expense.
3. Qualified Business Income—As a profitable business your business income above your salary is only partially taxable. You get a 20% tax free portion which pays no income taxes.
4. Travel Expenses—Take a business trip instead of a vacation. Make sure you discuss business or have a legitimate business purpose or at least an annual retreat for the business owners. Plan it, hold the meetings, record the notes and write off the expenses with pre-tax dollars.
5. Vehicles—Your company can buy your vehicle and depreciate 100%(Section 179) or your company can reimburse you for your business mileage. Having a company car or knowing the company is paying for your gas, maintenance and cost of operating the vehicle is a nice way to have the business pay for the expense with pre-tax dollars.
6. Financial Planning—As a business owner, your business should be paying for your financial plan with BSG. This will also apply to other services which benefit your business and you personally.
7. Hiring Your Kids—This can be a great opportunity to pay your kids to do or be involved in your business. It allows you to pay them while they are in a lower tax bracket than you and still have the money go to the household through each child.

There are many rules and nuances to these tax strategies. Please do not assume that these explanations are applicable at face value for you.