Starting, running and growing a small business isn’t easy – and it certainly isn’t cheap. From setting up an office to hiring employees to making sure those employees have competitive benefits, there are new expenses every step of the way. Fortunately, there are also plenty of ways to save, no matter what stage of the process you are in.
1. Section 179 deduction
Section 179 allows small business owners to deduct the cost of what the IRS calls “tangible personal property” in the year it is purchased. Tangible personal property refers to long-term business-use items like computers, equipment, machinery and furniture. Although it does not apply to buildings, climate control systems and inventory, it can include vehicles, as long as they are used for business purposes at least 51 percent of the time. Section 179 is unique in that it allows business owners to deduct the full purchase price of the item in the year it is acquired, rather than requiring them to spread out the cost of the equipment over several years. It is important to note that as of 2014, a business owner can only deduct up to $25,000 worth of property under Section 179.
2. Health care tax credit
In 2014, small businesses can claim a 50 percent deduction for the cost of employees’ health care if the insurance is purchased through the Small Business Health Options Program Marketplaces. The small business must also meet the following stipulations:
- The business pays average annual wages of less than $50,000 per employee.
- The business has fewer than 25 full-time employees.
- The business contributes at least 50 percent to the employees’ health care premiums.
Because of these stipulations, the health care tax credit won’t work for every small business, but it can be ideal for start-ups and very small businesses.
3. Hiring family members
Family ties are an important part of many small businesses. If you’ve hired your spouse, children or parents to help you out on weekends or after school, you can deduct reasonable compensation paid to them. In many cases, you also won’t have to pay unemployment, Social Security and Medicare taxes on wages paid to your family members.
4. Cellphone use deduction
As a busy small business owner, the chances of you sitting by your business’s landline all day are slim to none. For that reason, you can now deduct the business use of your cellphone from your taxable business income. To do this, experts suggest getting an itemized bill from your service provider, so you can accurately measure the business use of your cellphone.
5. Home office deduction
If you run your business out of a home office, make sure to take the applicable deduction. The deduction for home offices was previously very complicated and arduous, but starting in 2014, there’s a much simpler way to calculate it. If you use part of your home exclusively and regularly for business, you can deduct $5 per square foot of your office, up to 300 square feet.
Whether you’re in a home office or a Main Street storefront, there are important tax deductions available to your small business. You already know to report charitable donations and business travel expenses, but make sure to take these as well. Consult an accountant to make sure these deductions apply to your small business and to find additional ways to save.
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