Starting a business is expensive – which is why it’s so important for small business owners to know how and where tax deductions are an option. Whether you are an S Corporation, C Corporation or an LLC – each type of corporation lends itself to tax benefits that should be taken advantage of. C-Corps, for example, are able to take deduction on health insurance premiums, whereas S-corps are not.
However, while tax deductions are a great way for small businesses to save money, it’s essential to ensure that each deductable expense is justified from both a business and operations perspective. Here are some helpful tips to consider when looking for tax deductable savings:
- It goes without saying that the costs of running a business add up, but many of these ordinary business expenses are tax deductable. However, it’s important to recognize the difference between a business expense and a capital asset. Copy paper would be considered a tax deductable business expense, but a computer would be considered a non-deductable capital asset because it benefits the business for more than one year.
- Look at the benefits you offer to employees. After incorporating a business, programs including health insurance premiums, life insurance or retirement plans are often tax deductable expenses. As mentioned above, some of these types of deductions are only allowed if you are a C-Corp – so be sure to familiarize yourself with the regulations for your specific type of business. These benefits will not only offer you savings when tax season rolls around, but they are also a great incentive to attract new employees.
- Working from a home office? The Small Business Administration says that the average home office deduction is $3,686 – but be careful when taking this type of deduction. Make sure that writing off a home office makes sense for your future because it can’t be exempt from capital gains tax if the house is sold later. A home office deduction is an example of a deduction that’s likely more relevant to an S-Corp.
- As with all documentation for your business, be sure to keep thorough records of all expenses. This way, in the event of an audit, you can easily prove to the IRS that you paid the expense and the deduction was correct.
Tax season can definitely be a headache, but the savings you can generate through tax deductions are a nice silver lining. The best thing you can do is familiarize yourself with the IRS regulations for your specific corporation, ask questions and make sure you’re taking advantage of all legal avenues to save.