It’s tax season! As a business owner, this is not always the part of our work that we get excited about; however, it is a must if you plan to be in business. Paying taxes isn’t fun, but it isn’t a bad thing either. When you are paying taxes at the end of the year, it means that you have been profitable. Based on how you operate as a business, you can minimize the tax you will have to pay with some business deductions that can help you keep more money in your pocket or reinvest back into your business.
If you work out of your home, there are many ways you can decrease your taxable income by using the Home Office Deduction. These expenses can include a percentage of your mortgage or rent, mortgage interest, property taxes and maintenance cost. These deductions should only include a portion of these monthly costs and must be proportionate to the actual use. For example, if you own a 2,000-sq.-ft., home and you have a dedicated office that is 200 sq. ft., you can expense 10% of your mortgage cost to your business. This is also true for the utilities expenses that you pay for as a portion of what is used can also be expensed. This can include water, electricity, trash, telephone, and internet expenses. Using these benefits to the fullest will decrease your taxable income and save you thousands of dollars per year.
Section 179 of the US Tax Code is an immediate deduction for certain business assets that all business owners should know about. Section 179 allows you to deduct the full purchase price of assets such as vehicles, software, large equipment, computers, and office furniture from your current year taxable income. This simply means you can theoretically reduce your taxable income to $0 and pay no federal tax by investing into your business. This is a Federal tax deduction developed to incentivize businesses to reinvest and grow their companies. For year 2023 tax filings, the maximum Section 179 deduction that can be taken per year is $1,160,000.
No matter what size of business you have, there are tax incentives out there that you can take advantage of. Talk to your CPA or hire a CPA that is qualified to help you utilize these incentives. Start planning for 2024 for ways to utilize tax incentives to be more profitable and reinvest in your company to also make you more profitable. As said before, paying taxes isn’t a bad thing as it does mean you are profitable. Working to minimize the amount of taxes you will need to pay is a good problem to have.
Best to your success,