3 Ways to Make the Most of Your Small Business Tax Deductions
If preparing tax returns and paying amounts owed are tasks you think about only when tax time approaches, you’re not alone. But with some planning, and a few key strategies, you can make sure you’re taking advantage of the deductions that are available to you as a small-business owner.
How to make the most of your small business tax deductions
Here are three things you can start doing now to lower your tax liability and keep more funds in your own account.
Take the longer view
Engaging in strategic tax planning throughout the year, rather than scrambling at the last minute to figure out what you’re eligible for or to gather records, can make a significant difference. Some examples:
- Keep track of your income as you receive it so you don’t overstate or understate your income on your return. You can do this in a simple spreadsheet program, if your business needs allow for it. Or you can use a small-business accounting program.
- Do the same with expenses as you incur them. And keep your receipts — electronic or paper — in folders you can find easily when you need it.
- Be aware of current tax provisions that apply to you. For instance, if you’re a small-business owner with a home office, you can deduct rent, interest, taxes, utilities, maintenance and other expenses for the office portion of your home. Or, if you plan to buy certain types of new or used equipment for your business and will place it in service before January 2023, you can take a 100% first-year accelerated depreciation deduction (bonus depreciation). The deduction begins to phase out between 2023 and 2025 (from 80% to 20%).
Stay on top of changes
Tax law is complex and ever-changing. Legislation comes about both in larger packages, such as the Tax Cuts and Jobs Act of 2017, and in response to situations like COVID-19.
One way Congress helped restaurant owners keep their businesses open during the pandemic was to institute a tax provision that might apply to you. For the 2021 and 2022 tax years, business meals provided by restaurants are 100% deductible (previously, they were deductible at 50%).
This includes meals you have while dining in at a restaurant, or via takeout and delivery. You just need to be sure the deductions follow the rules for ordinary and business meals expenses. Congress is currently considering additional tax legislation as part of the Build Back Better Plan. So keep an eye out for additional changes that may impact your tax liability.
Switch hats
In running your business, you fill many roles. When it comes to your taxes, you may want to consider switching from doer to outsourcer.
Take the leap to find a tax professional who understands your business and industry. You need someone who looks objectively at the big picture. You also need someone who is knowledgeable about the tax code and how to apply it skillfully. This can help you save time and money. Although you’ll pay a fee for professional services, determine whether it works out in your favor to put the time you spend wrangling with taxes into making money for your business instead.
When a professional takes care of your taxes, you often avoid common errors on your return. These errors include:
- Mistakes in deduction calculations
- Failure to include necessary attachments, penalties and interest associated with missed deadlines and late filing
- Not taking tax credits you’re eligible for
Look for a tax professional who can assist with strategic tax planning throughout the year, too.
Whether you continue to do your own small-business taxes or you work with certified public accountants, being aware of how current tax provisions affect your business, keeping records up-to-date and thinking strategically all contribute to smoother and more successful tax return preparation and filing — and enhance your business’s growth, health and longevity for long term.
Cloe Richelle, CPA, JD, joined CB Smith & Associates as a senior tax manager in 2020. She specializes in business and individual taxation, trusts and estates. She holds a master’s degree in accounting with taxation emphasis from the University of New Orleans and a Juris Doctor from Loyola University. Cloe is a member of the American Institute of CPAs, The Georgia Society of CPAs and the Louisiana State Bar Association.
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