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By Debbie Gregory.

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Every small business wants to minimize their taxes and maximize their deductions. However, many small business owners miss out on a tax code that can benefit them, U.S. Tax Code Section 179.

 

According to a recent survey conducted by the National Federation of Independent Business (NFIB), Section 179 has helped small business growth and prosper:

  • 35% of current small business owners are unaware that they could be eligible for a deduction under Section 179.
  • 78% of small businesses used Section 179 to offset their tax expenses last year.
  • 82% of small businesses purchased equipment or software last year (cars, trucks, office furniture, machinery, etc.).
  • The top three purchases made were computers (51%), vehicles (44%) and office furniture (31%).
  • 75% made qualifying purchases of less than $50,000.

 

What is Section 179?

Section 179 refers to property depreciation deductions a business can claim. It does not increase your overall deduction but it can give you the option to take the deduction more quickly. In other words, you can declare the entire deduction in a single year instead of spreading it over many years.

 

An asset’s useful life depreciation deduction can be stretched out to a maximum of 39 years but most are taken over a 5 year period. Under Section 179, you can deduct the entire expense in the first year.

 

This can be especially helpful if the company needs the asset to grow and the item purchased was quite expensive up front. The tax impact can help ease the burden and help the company grow. Currently, the deduction is limited to $1 million and a total investment limit of $2.5 million.

 

How Can This Help Your Business?

Section 179 can be used for most tangible assets purchased to run your business. This tax break is intended to make it more affordable for small businesses to buy expensive equipment including:

  • Machinery
  • Computers
  • Computer software
  • Other business equipment
  • Company vehicles
  • Office furniture
  • Capital investments
  • Property
  • And more

While a business has always been able to deduct expenses of this nature, they could only deduct a portion of the asset’s value every year. With Section 179 the full value can be deducted in the same year that the purchase was made.

 

Where Can I Obtain More Information About Section 179?

If you have any questions about Section 179, visit the official Section 179 informational website at http://www.section179.org/. If you are looking to learn about other potential tax breaks for you or your business, you can always visit the IRS’ website at https://www.irs.gov/ to learn more.

 

Our Advice

The US tax rules are constantly changing, it is always best to pay attention to taxes all year long and not only at tax time.  Keep alert for changes in tax laws and always consult a professional for help.

 

Disclaimer

We are not tax professionals and we strongly recommend that before you take any actions, that you consult your own licensed tax professional. It is always best to seek professional assistance if you have questions about taxes or their s on your specific business. Working with a professional also provides you better opportunities to find and take advantage of legitimate tax breaks and opportunities to lower the amount of taxes that you pay.

 

By Debbie Gregory.

LinkedIN Debbie Gregory VAMBOA VAMBOA Facebook VAMBOA Twitter

 

Every year tax season comes around filled with the same major questions including:

  • How much will I have to pay?
  • Why do I have to pay so much?
  • How can I reduce my tax liability?

 

No one wants to pay one dollar more in taxes than necessary.  Finding legitimate ways to lower your taxable income is something that is very important to your business. A lot of business owners end up paying more than they should due to the simple fact that they missed out on certain deductions. However, if you consider that the U.S. tax code is approximately 70,000 pages long, it’s understandable why small business owners have challenges.

 

Ways to Save Paying Taxes for Small Businesses:

 

1.) Make Smarter Tax Deduction Choices:

Being strategic about your business expenditures can help lower your taxable income. For example, an established company purchasing a large dollar piece of equipment can deduct the entire cost of acquiring the machinery or equipment. However, a start-up would be better off spreading out the value of the purchases across your future tax years instead of deducting the full purchase price all at once.

 

Other deductions to consider:

  • Vehicle expenses (based on actual costs)
  • The IRS mileage allowance(currently 58 cents per mile)
  • Home office expenses (based on actual costs), or you can use the IRS simplified rate (which is currently $5.00 per square foot up to 300 square feet of space)
  • Claiming disaster losses on prior year returns rather than on the return for the year in which the disaster occurs
  • Your business insurance expenses

 

2.) Carryover Deductions:

Certain deductions and credits have limitations that can prevent you from using them fully in the current year, but carryover the remaining amount to future years. Keep track of any carryovers so that you won’t forget to use them in future years.

 

Examples of these include:

  • Net operating losses (limited to 80% of taxable income)
  • Home office deduction
  • General business credits
  • Capital losses
  • Charitable contribution deductions

 

3.) Change your Business Structure:

If you are currently doing business as a sole proprietor or partnership, it may be time to look at a new business structure. Many small businesses choose to do business as an LLC (Limited Liability Company), or a “pass-through entity”, since it may offer more flexibility on how income can be taxed.

 

4.) Adjusted Gross Income (AGI):

A number of tax breaks, limitations, and additional taxes are based off of the Adjusted Gross Income (AGI), or the Modified Adjusted Gross Income (MAGI), which for some is the same as the AGI. Keep a close eye on taxes taken out of the income, some may not be relevant to your business at all.

 

5.) Use Tax-Free Ways to Extract Income from Your Business:

Items such as your salary, bonuses, and any distributions of business profits are taxable.   There are other ways that may allow you to possibly benefit from your business’s success without necessarily triggering tax liability.

 

Items such as:

  • Tax-free fringe benefits, including items such items as medical coverage or retirement plans
  • Loans made to you by the business on a no or low-interest basis

 

Please stay tuned for Part 2 of this series with five more ways for small businesses to reduce or save on taxes.

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