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8 Strategies for Small Business Owners

If you are a business owner i’m pretty sure you have tons of questions related to taxes such as, what to deduct? What tax credits are available to me? Fortunately for small business owners, there are hundreds of tax credits you can take to lower your tax liability. I will go over 8 simple tax strategies you can start implementing today.

8 Tax Strategies

  1. Health Care Tax Credit. Here’s a tax credit that can place money in your pocket. This credit benefit your business if you meet the following requirements:
  • Have less than 25 full time equivalent employees (two part-time employees count as one full time)
  • Pay average wages of less than $50,000 (add up your total wages and divide by the number of FT employees)
  • Offer a qualified health plan to its employees through a small business health options program
  • pay at least 50% of the employee health care cost

How does this credit affect you?

The maximum credit is:

  • 50 percent of premiums paid for small business employers and
  • 35 percent of premiums paid for small tax-exempt employers
  • The credit is available to eligible employers for two consecutive taxable years

The amount of the credit you receive works on a sliding scale. The smaller the employer, the bigger the credit. So if you have more than 10 full-time equivalent employees or if the average wage is more than $25,000 (as adjusted for inflation), the amount of the credit you receive will be less. For example, if you pay $50,000 a year toward employees’ health care premiums,and if you qualify for a $10,000 credit each year, you can save $20,000 over the course of two years

Even if your small business does not  owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.

2. Section 179 Property. Section 179 allows taxpayers to deduct the cost of certain property as an expense when the property is placed in service that same year. The Section 179 deduction applies to tangible personal property such as machinery and equipment purchased for use in a trade or business, and if the taxpayer elects, qualified real property.

3. Charitable Contributions. Don’t forget to take advantage of your acts of kindness your business makes throughout the year. Giving to charities does have its rewards as a business owner and its in the form of taking the charitable deduction.

4. Miscellaneous deductions. Just about every other expenses that’s in the normal course of business can be deducted, this does not grant you an opportunity to hide personal expenses as business expenses. Examples include, travel, subscriptions, payroll expense, etc.

5. Work Opportunity Credit. The Work Opportunity Credit is available to your business for hiring certain individuals within the disenfranchise group. To qualify,

  • You must obtain certification that the individual is in the targeted group
  • File Form 8850 with 28 days after the eligible worker begins work

Limitation of the credit

The credit is limited to the amount of the business income tax liability or social security tax owed. For qualified tax-exempt organizations, the credit is limited to the amount of employer social security tax owed on wages paid to all employees for the period the credit is claimed.

Targeted group

  • Qualified IV-A Recipient
  • Qualified Veteran
  • Ex-Felon
  • Designated Community Resident
  • Vocational Rehabilitation Referral
  • Summer Youth Employee
  • SNAP Recipient
  • Long-Term Family Assistance Recipient
  • Qualified Long-Term Unemployment Recipient

6. Employer-Provided Childcare for employees. If your business pay for your employee’s child care expense, you can receive a tax credit. The credit is 25% of the expenses paid, p to 150K per year.

7. Pension Plans Start Up Costs. You may be able to claim a tax credit for some of the ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified plan. A tax credit reduces the amount of taxes you may owe on a dollar-for-dollar basis. You can claim this credit if:

  • You had 100 or fewer employees who received at least $5,000 in compensation from you for the preceding year;
  • You had at least one plan participant who was a non-highly compensated employee; and
  • In the 3 tax years before the first year you’re eligible for the credit, your employees weren’t substantially the same employees who received contributions or accrued benefits in another plan sponsored by you, a member of a controlled group that includes you, or a predecessor of either.

8. Deduct Health Care Premiums. If you have an individual health plan and pay premiums out of pocket, you may be eligible to claim them as income deductions.

We Specialize in Non-profit Accounting and Taxes. Book a free strategy call with us today!




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