Don't Forget These 3 Things When Preparing Your Small-Business Taxes
The tax filing deadline is fast approaching, but there’s still time to claim all the deductions and credits for which your small business is eligible. When you’re preparing your returns, refer to these three tips to ensure you're saving the most money possible.
1. Deduct All Eligible Expenses
Many business-related costs are tax-deductible, and it’s to your advantage to claim every eligible expense. In order for a business expense to be deductible, it must be both ordinary and necessary for your business. An ordinary expense has to be commonly used in your line of work or trade and a necessary expense has to be helpful to your business or useful in your field of work.
2. Use Your Home for Business? Don’t Forget Home Office Deductions
If you use your home for business, you may be able to deduct some of the costs associated with your home-office, such as the costs of home insurance, monthly utilities, and mortgage insurance. In order to qualify for home office deductions, two requirements must be met: you must use part of your home exclusively for conducting business, and your home must principal place of business. (There are nuances to this rule; see the IRS Home Office Deduction page for more).
There are two methods of calculating the business use of your home: the regular method and the simplified option.
- With the regular method of home office deductions (required for tax years prior to 2012 but optional for following years) small-business owners must determine the actual expenses of their home office by calculating the percentage of the home that is being used for business purposes.
- As of January 1, 2013, business owners have the option of using a simplified method for calculating their home office deductions. This method allows you to multiply a prescribed rate by the allowable square footage of the office space in your home instead of having to calculate actual expenses.
3. Check Your Eligibility for Tax Credits
The IRS offers a number of tax credits that can help small businesses. Before you file, make sure you are taking advantage of every possible credit. Here are two lesser-known tax credits that your business may be eligible for:
Small Business Health Care Tax Credit – Introduced in 2010, the goal of the Small Business Health Care Tax Credit to encourage small businesses to provide its employees with health insurance. If you have fewer than 25 full-time equivalent employees that are paid less than $50,800 (2014 amount adjusted annually for inflation) on average and pay at least half of the premiums for your employees’ health insurance coverage, you may be eligible for this credit. For tax years beginning in 2014 and thereafter, the maximum credit is 50 percent of premiums paid by the employer for non-tax-exempt businesses and 35 percent for tax-exempt organizations. Additionally, beginning in 2014, the credit is limited to two consecutive years and must be purchased through a Small Business Health Options Program (SHOP) marketplace.
Plug-In Electric Drive Vehicle Credit – This tax credit encourages small businesses to “go green” by using eco-friendly vehicles in their daily operations. Both passenger vehicles and light trucks are eligible, with the maximum credit amount being $7,500. In order to be eligible for this tax credit, all vehicles must be acquired for use or lease and not for resale. In addition, the vehicle must be used mostly in the United States and primarily by the business owner. More details are available on the IRS website.