Sometimes it can seem like tending to business admin is like facing a hydra in battle – just when you think you’ve sorted everything out, the next wearisome task raises its ugly head. When you’re starting up a new business, this effect can be all the more worrisome: did you think of everything? Could there be something that you left out? To then ensure you can maintain a good work-life balance, as well as being not only on top of your taxes, but also financially secure seems like an almost impossible ask. That is why it is well worth informing yourself about small business regulations, the potential tax deductibles you could be paying for out of pocket, and also the various schemes that could be out there to help new and small businesses with their tax relief.
In Europe, certain member states have reduced VAT levels, or exemptions for businesses earning under a certain amount. This is not entirely the case across the USA; but from state to state it is possible to find certain schemes which have been put in place to help small businesses find their feet. For example, in New York, the scheme “Start Up NY” helps businesses through tax-based incentives, and offers new and expanding businesses the possibility of going tax-free for 10 years. There are restrictions to this, however, as this applies to businesses which are on or near eligible university or college campuses within New York state, but nevertheless, if a business is partnered with a college or university, joining this scheme could help it for the first ten years of its operation. There are a few businesses, which are not allowed to apply for this scheme, including: restaurants, retail and wholesale businesses, hospitality, real estate companies, as well as medical and dental practices. For the full list, visit the StartUp NY webpage. It will be worth your while to inform yourself of any other small business schemes that your state or even local government may have. It is also important to see which small business regulations your state may have in place, and keeping up to date with tax information. For example, as of 2018, there was a change to first year bonus depreciation, which could massively help small businesses.
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In order to be able to hire workers, or generally increase the money start-up businesses have, a change in tax legislation in 2018 meant that the first year bonus depreciation has risen from 50 to 100%. This means that equipment and property purchases can be deducted in full, rather than having to write off some of the expense each tax year. The money saved from this is what should help small businesses flourish.
While it may be time consuming to review invoices and receipts for your annual financial statement, it could be very much worth your while to keep an eagle eye out for deductibles. These are not tax exemptions for small businesses, but rather a good way of ensuring you make the most out of your tax return. Although it may seem like you have to spend money around tax time, you could really be saving lots of money by deducting certain things from your income, which you have spent money on for your business. Below, we will look at a comprehensive, although by no means exhaustive list of small business tax deductions with an explanation of how they apply.
If you run part of your business from home, you may be able to deduct amounts from what you pay in rent and utilities for your home. However, you must work at home in a dedicated working space – setting up late at night at the kitchen table once in a blue moon is not enough to qualify for this. If you are self-employed, it is pretty much a given that your desk at home is like the desk you would have at work, but if you split your time between home and the office, you should pay attention to exactly what counts as a home office space. This particular deductible is a tricky issue at times, because it is, for obvious reasons, difficult to regulate. It is advisable to check out the exact guidelines with the IRS and speaking to your tax advisors and accountants before adding this deductible to your tax return.
If you do not have an in-house accountant or attorney for your business (as a small business you will not, and it is unlikely for a start-up). This does not mean, however, that a small business should not be able to deduct these services, and the good news is that you can! Professional services span from accounting to marketing consultants, and you can deduct the fees as long as they are reasonable, appropriate for your business, and were incurred in the tax year in question. More precise information can be found in IRS literature, or through your tax advisor.
You can also deduct certain services such as your cleaner or janitor. These services are important to keep your business running, and although you might not think of them as being as essential as your accountant, these services are still key to daily business operation. They count as a small business deductible in many cases.
This has not even begun to scratch the surface of all the possible deductibles out there. Deductibles such as salaries and wages, work opportunity tax credit, and client and employee entertainment are all further categories for which a tax deduction might be possible. More information on this can be found at the IRS website on deducting business expenses.
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