As a small business owner and an entrepreneur; there are many fires to put out, and every dollar you can spare is essential. Not only do you have to get a handle of resource management, but you also have to pay taxes. A failure to pay taxes is a punishable legal offense.
When the tax season creeps up on you, you begin to wonder about tax savings for business owners. Fortunately, in Utah, there is plenty you can save if you pay attention to your deductions and benefits to lower your tax liability. Of course, these things will vary based on the structure of your business.
However, here are three strategies you can apply:
Using startup cost as a deduction
The excitement of having a company can lose you in new client meetings and strategizing meetings that you forget to keep records. Do not forget to note the amount you spent on your startup. The IRS offers tax breaks that allow a $5000 deduction from your startup costs during the first year of business.
With this deduction, you lower your taxable income for the self-employment and the income tax. Even Medicare and Social Security taxes are covered here. Therefore, note what you spent on supplies, equipment purchases, and other operational fees.
Getting more deductions with special depreciation
When you buy large items to be used in your business transactions, mainly if they are meant to serve you for over twelve months, you cannot reduce the full cost during that year. You depreciate these items and have a part of the fee on your yearly returns.
To work around this, reduce large amounts on the first year of purchase to get a depreciation allowance. With the reduction, half of the item’s cost will become a deduction. You can do this will all tangible things.
There are cases where you can take a full deduction from the price of the property in the first year. The constitutional section covering deductions explains this matter in full. It sets the limit to property that costs more than $500 000. However, residential rentals will not qualify.
Creating retirement accounts
After establishing your business, you have a constant stream of income, and so you can prevent this money from getting taxed by investing in a retirement account. For instance, consider your retirement account or open one for your spouse. A maximum $5,500 that you contribute every year will be tax-free.
Participating as an employer will double how much you can deposit tax-free. There are other ways you can make sure that you do not work only to pay taxes. For example, if you work from home, you can deduct your expenses as related to the business.
The office will need to be a space with a desk, for example. A bedroom space will not suffice. Everyday expenses that could be deducted include utilities, insurance, and repairs.
Note that every situation will be different. One business could qualify for a deduction that another one does not so be sure to investigate to see what will work for you.