With just two months until April 15, many small businesses are in the process of preparing their federal and state tax returns.
Jessie Seaman, who leads the business tax team at the Tax Defense Network, said it's important that business owners know all of the deductions they can take to ensure they aren't paying more to Uncle Sam than they absolutely have to.
To help make sure business owners aren't missing anything, Seaman highlights several credits and deductions that many small businesses often overlook when filing their tax returns. They include:
- Home-based businesses: Working from home allows for the home office deduction, but it also allows for travel expenses if the home is the place of business. When home-based business owners leave the house and travel to different locations for business purposes, all the travel is deductible. They should keep a log and records, so the standard mileage rate or actual expenses may be taken.
- Sales tax: State sales tax, especially on big-ticket purchases like vehicles and equipment, is fully deductible.
- Interest and bank fees: Businesses can write off interest paid on credit cards, loans, overdue bills, account payables, as well as bank fees, such as nonsufficient funds fees or monthly surcharges.
- Hiring veterans: While the "Work Opportunity Credit" is not a deduction because it does not reduce income, it does reduce the final tax bill, dollar for dollar. The credit is available to businesses that hire veterans for the first time. The amount of the credit is based on a number of factors, including how long the veteran was receiving unemployment compensation and whether or not the veteran is disabled. Employers must file Form 8850 with their state agency to get certification.
Since tax rates increase to 39.6 percent this year for those with higher income — $440,000 for a single person or $450,000 for married filing jointly — it is important to take all the dedications the business needs to stay below that income limit if possible, according to Seaman.
"The income limit is for individual taxpayers, but most small business owners pay the income tax on all net profit," Seaman said.
Originally published on Business News Daily.