When it comes to tax season, we know this is the time of the year that many business owners dread. Between the tricky and confusing tax codes and the uncertainty that comes with how you can minimize your tax bill, things can get hectic. Thankfully we’re here to help! Each year many businesses miss out on a reduced tax bill because they don’t know what deductions or credits are available. With the Tax Cuts and Jobs Act and the changes that it made to the existing tax code, now is a great time to familiarize yourself with a few tax deductions and credits and how they can save you money.
Tax Deduction vs. Tax Credit
First, let’s breakdown the difference between a tax deduction and a credit. While both can help to reduce your tax bill significantly, they work differently. A tax credit is an incentive that’s subtracted directly from the taxes that you owe. For example, if you qualify for a tax credit of $2000 and have a tax bill of $4000, that credit lowers your total to $2000. Unlike a credit, tax deductions reduce the amount of your income that is subject to taxes, lowering the overall tax expense liability.
Now that we’ve gotten that out the way let’s take a look at ten tax deductions and credits that can weaken the blow of tax season.
The 2017 Tax Cuts and Jobs Act eliminated the entertainment expense deduction; however, meal expenses are still deductible. As long as the meal is business related, it’s deductible at 50%. There are some exceptions to this deduction including small meals that are provided to employees, which are 100% deductible.
These costs are 100% deductible and include; newspaper, magazine, online, and TV advertisements. This category also covers online (SEO, newsletter) and direct marketing efforts, public relations, and the costs of brochures and business cards.
The IRS defines these expenses as ones that are ordinary and necessary when traveling away from home for business. This includes but is not limited to transportation, lodging, meals, parking, and toll fees.
Office supplies include the usual tangible items, like ink cartridges, cleaning supplies, pens, paper clips, staplers, paper, and furniture.
Office expenses are the expenses associated with running your office. This includes software and hardware, electronics, apps, website services, and domain names and hosting. To deduct these expenses and supplies, they must cost $2500 or less. If they exceed $2500, they might have to be capitalized as a depreciable asset.
These benefits include reading and reference materials, courses, and workshops that help maintain or enhance your job skills or are mandatory to work in your profession. Some examples are online courses, seminars, conferences, ebooks, audiobooks, and magazine or newspaper subscriptions. If the education costs qualify you for a new career or take you outside of your current business, you can not be eligible for this deduction.
While this credit has been around for years, many businesses don’t realize that they can qualify for this credit. You may be eligible for this credit if you’ve conducted research for the development and improvement of products or improving your business performance.
This is a federal tax credit for employers who hire individuals from groups that typically face issues with finding employment. These new employees include Veterans, ex-felons, SNAP, TANF, and SSI recipients.
Employers who provide their employees with paid family and medical leave may qualify for this credit. This credit does not apply if the FMLA leave is mandated by local or state law.
If you’ve made changes to your business to be more energy efficient and environmentally friendly, then you might qualify for this credit. These changes include solar technologies, fuel cells, and geothermal systems.
To be eligible for this credit, employers must have fewer than 25 full-time employees who earn an average of less than $51,600 annually. They must also offer a qualified healthcare plan and pay at least 50% of the employee’s health care coverage.
We know that this was a lot to take in, but hopefully, our short list of credits and deductions for your small business gave you an idea of what’s available to you. These things can become very complicated, so we highly suggest that you consult with your CPA or feel free to schedule a call to speak with our Director of Tax. If you’re interested in learning about our services and how we can take the stress out of tax season, please contact us.