small business savings
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DEDUCTIONS THAT TAKE THE STING OUT OF TAX SEASON STORY BY SCORE SC LOWCOUNTRY
WHEN YOU FIRST START A BUSINESS, YOU DON’T KNOW WHAT YOU DON’T KNOW. This can be especially true when tax time rolls around. Many business owners aren’t aware of the abundant number of small business tax deductions out there that can take the sting out of tax season. Like most tax laws, the rules around deductions change all the time. The most recent business tax deduction act, the Tax Cuts and Jobs Act, took effect in 2018 and started impacting tax returns filed in 2019. Use this as a guide as you prepare your 2020 return and always consult the IRS guidelines on small business tax deductions for the latest information. HERE IS A LIST OF 10 DEDUCTIONS THAT SMALL BUSINESSES TEND TO OVERLOOK. Startup Costs Many entrepreneurs don’t realize they can claim business expenses on a tax return for expenses that hit prior to the business’ launch. Most small businesses can deduct up to $5,000 on their first year’s return. Taxes, Interest, Fees & Charitable Contributions If your business pays tax to any state or local jurisdiction, you may be able to deduct those taxes as a business expense on your federal return. If you pay for business expenses with credit cards, you can deduct any interest and late fees you incur. You can also deduct banking fees such as card-processing fees, fees when making payments, and any others you incur on your business banking accounts. Just like with startup costs, any money you borrow to start the business can be recorded as business liability and the interest can be expensed accordingly. Charitable contributions may be deductible as well.
Wages and Payroll Taxes Being an employee in your own business has a lot of benefits at tax time for your personal tax return. By paying yourself a wage or salary rather than a distribution or dividend, you’ll avoid paying a self-employment tax on your personal return. You should also claim all other employee wages and payroll taxes as deductions for the business. Retirement Plan Contributions Retirement planning and tax planning go together. The tax benefits you’ll receive depend on the retirement plan you have — IRA, 401(k), or one of many others. Businesses can establish inexpensive 401(k) plans with higher contributions for owners. Other retirement account options are available for small businesses.
SCORE SC Lowcountry is a nonprofit association dedicated to helping small businesses get off the ground, grow, and achieve their goals. 40 // H I LT O N H E A D M O N T H LY. C O M
