Tips for Maximizing the Tax Advantages to Owning a Business
One of the major benefits to owning a business is the tax advantages that go along with it. Tax benefits include the deduction for purchases and
services used for the business throughout the year. Items include home office, automobile, classes, entertaining, and even retirement. Learn how to maximize your tax advantages to owning a business.
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Section 179 Deductions
A popular tax advantage to owning a business is the section 179 deduction. A tax incentive for business owners, the section 179 deduction gives businesses the ability to deduct a qualifying item’s full purchase price during the tax year of purchase rather than depreciate the value over time. The 179 tax deduction allows you to deduct the total cost of a vehicle under $25,000 and over 6,000 pounds. It also provides other tax advantages to business owners such as allowing you to deduct business software, computers, peripherals, and art used in your office. Other qualifying items include business equipment, like printers or copy machines; office furniture, such as desks, chairs, shelving, and filing units; or mixed-use items, such as televisions and cell phones used for personal and business use. Mixed-use items are only tax deductible to their percentage of business use.
Section 179 deductions result in a huge tax advantage when you own a business. They allow the business to invest in itself and buy the products necessary to grow and sustain profitability. There is a $500,000 total limit as the amount for the write off in the tax year of 2010, and the item must be used in the business more than 50% of the time to qualify.
Schedule “C” Deductions
The IRS form called a Schedule “C” contain may tax advantages for your business. The schedule C lists all the expenses from the business and deducts them from the total income. Several well known standard schedule C expenses include office rental or leasing costs, business office supplies, utilities, and internet costs associated with the business. However, the list of tax benefits available to a business encompasses so much more.
Additional tax advantages to owning a business include the deductions for marketing brochures, designing a web site, and promotional gifts for clients. Entertainment tickets to take your client to the game or the theatre are totally deductible (including a sky box which is limited to the price of a ticket) as are holiday parties for the company employees or the clients. Other tax advantages include the registration fee for trade shows, conventions, training seminars, and classes; fees for a business license, registration, and dues; subscriptions to magazines and websites; and business insurance.
An added tax advantage to owning a business is the ability to deduct the portion of your home dedicated to your business. This may be an entire room or simply a corner that contains your desk, computer, and supplies. Calculate the square footage of the space in relation to the total square footage of the home and determine the percentage of business use in the home. Use this percentage to deduct money from your rent or mortgage payment, property taxes, utilities, security devices, and home owners insurance. You may deduct the total amount of payment for repairs, modifications, or improvements to this space.
There are several caveats to claiming the home office deduction, so make sure you comply with these rules to receive your business tax advantage. The home office must be your principal place of business and the space must be used exclusively for business use. Finally, your deductions for a home office cannot exceed the net profit of the business. If you follow these rules, then you can claim the tax benefits for your home business.