As a small business owner, this is the time of the year to begin thinking about the tax filing deadline. According to a study commissioned by the U.S. Small Business Administration (SBA), small businesses in the United States pay an effective federal tax rate of 19.8%. Sole proprietors pay the smallest effective rate of 13.3% while partnerships and Subchapter S Corporations classified as small businesses pay an effective rate of 23.6% and 26.9%, respectively.
Because much of the tax burden borne by small business is due to compliance with complex rules and filing requirements, as a small business owner you should look for any and all deductions you are eligible for in order to reduce your tax burden. There are many of deductions available; many of which were enacted through the Small Business Jobs Act of 2010. These include a deduction for the purchase of mobile telephones for the business, a health care tax credit for businesses with 25 or fewer employees, mileage expense deduction for vehicles placed in service for the business, work opportunity tax credits, and a startup deduction.
If you purchased a mobile telephone for use in your small business, you are eligible to deduct the expense of the device(s) purchased on your small business tax return. This deduction, which was a part of the Small Business Jobs Act, is often ignored by small business owners, meaning that you may be leaving money on the table by ignoring this simple deduction. If you purchased a mobile device (which does not have to be a smartphone) and used it for any percentage of time in your business, you can take a proportionate usage deduction.
This tax credit–as opposed to the deduction that is available to small businesses– is a result of the Jobs Act and the Affordable Care Act. A credit is an amount that is used to lower the amount of taxes owed, while a deduction is an amount that is used to lower your taxable income. Both are valuable for small business owners, and the health care tax credit can provide a valuable benefit.
If you are a small business owner with 25 or fewer employees, you can take a credit of up to 35% of the premiums paid for any health insurance plan in place. Starting in 2014, the maximum credit increases to 50% of health insurance premiums paid by a small business owner.
The mileage expense deduction is another often overlooked deduction that is easy for small business owners to take. If you use your car or any other vehicle for business purposes, as most small business owners do, you are permitted to deduct a percentage of the expense based on mileage. The mileage rates used to calculate the deduction are provided by the Internal Revenue Service, which in for tax year 2013 is 56.5 cents for vehicles used for business purposes.
If you employ certain at-risk individuals or returning persons (those convicted of a crime), you are eligible for a credit. This program is an incentive of the U.S. Department of Labor to move certain individuals from dependency to self-sufficiency and provides a credit to a small business that ranges from $1,200 to $9,600.
As a small business and particularly as one that commenced operation on or after October 22, 2004, you can take a startup deduction of up to $5,000 for any expense associated with creating the business. This deduction is available to your business provided that the total costs incurred are $50,000 or less. For startup costs that exceed $50,000, the deduction is reduced by the corresponding amount over $50,000, with a phase out of the deduction at $55,000.
For small business owners, saving money is important. Contact an R&G Brenner professional today to see if you can use a few of these tax deductions to cut costs, and use your funds for what matters most: growing your company.