If you own a small business, every dollar matters - especially when it comes to taxes. Whether your business is a partnership or corporation, Uncle Sam offers some sizeable deductions to lower your liability, allowing you to put those dollars toward capital and employees.
Easy-to-use tax preparation solutions have become an increasingly popular way for small business owners to navigate deductions and tax law changes. The programs ask simple questions about business income and expenses to help maximize your deductions. Solutions, such as the value leader TaxAct, allow you to use their online solutions for free and only require payment when you're ready to file.
TaxAct spokesperson Jessi Dolmage shares three ways to reduce your small business taxes.
Tip 1: Buy to save
Whenever buying new equipment, technology, software or even furniture for your business, save those receipts and keep detailed records that include purchase price and date placed into service. You should be able to substantiate any expenses you claim on your tax return.
The 2013 Section 179 deduction limit for new and used assets purchased is $500,000. However, your business must be profitable in order to receive this benefit in 2013. In 2014, the dollar limit drops to $25,000 unless Congress extends this tax break.
Bonus depreciation of 50 percent of the cost of new items expires at the end of 2013. Depreciation can be claimed whether or not your business is profitable.
Tip 2: Tis always the season for giving
Company donations of money, supplies and property are all deductible expenses. So are bonuses (and associated payroll taxes) awarded to your employees, partners and officers. If your business is an S Corporation, keep a close eye on officer compensation to ensure you meet IRS requirements and thus avoid penalties.
Give yourself the gift of education. Take a class or seminar or attend a convention that helps you maintain or improve skills required for your business.
Tip 3: Business is sometimes personal
If you use your home for your business, you may be able to deduct mortgage interest, insurance, utilities, repairs and depreciation.
Corporations and partnerships can also deduct actual expenses for non-personal uses of your personal vehicle, as well as reimbursements to employees for business use of their personal vehicles. Actual expenses may include costs for fuel, maintenance and parking fees. Your detailed mileage records should include date, total miles, tolls, parking and purpose of trip. You can also deduct vehicle depreciation and loan interest.
The bottom line
Small business owners have year-round opportunities to cut their taxes. Dolmage recommends doing a dry run of your taxes with an online or download solution like TaxAct before you actually file to identify potential savings. Answer simple questions about your expenses and revenues, and the program will do the rest so you can see how moving revenue and expenses forward or back may change your taxes.
To make tax time easier, TaxAct also offers a free mobile app for organizing your tax documents throughout the year. Take a picture of receipts, statements and tax forms with TaxAct DocVault, then save up to 3 GB of digital images on TaxAct's secure servers. At tax time, import images into TaxAct to save with your 1040, 1065, 1120 or 1120S tax return.