The Top 5 Most Overlooked Small Business Tax Tips
John F. Dennehy Jr., CPA, PC

The Top 5 Most Overlooked Small Business Tax Tips

Each year when tax income time rolls around, small business owners start looking for ways to maximize their deductions and minimize their tax liability. After all, nobody likes to pay taxes in excess —if they can avoid it. 

But if you wait until tax filing time to start preparing, it's already too late for you to take advantage of your best tax-lowering options. Instead, it's best to develop a tax strategy and begin laying the groundwork to minimize your tax liability on day one of every tax year. 

But to do it, you must understand all of the available tax deductions, credits, and opportunities to  reduce your business taxes. In other words, you need tax advice from an experienced small business tax professional. 

And this is where John F. Dennehy CPA can help. We are a team of tax professionals that specialize in providing valuable tax advice. Our goal is to help small business owners optimize all business tax deductions, which means lowering income tax liability and potentially maximizing returns. 

Don't hesitate to reach out to the team at John F Dennehy CPA today for personalized, tax advice and small business income tax assistance. In the meantime, check out our top five small business tax tips that are most often overlooked by small business owners.

There's a Small Business Tax Bill & Tax Credit for That

Although most people don't realize it, small businesses make up 99.7% of all of the companies within the United States. They're the engine of the whole economy. And that's why governments — at the federal, state, and local levels — go out of their way to help small businesses succeed.

One way this is achieved is through the small business tax bill. Each year, the federal government introduces different pieces of legislation to help drive small business growth. While each small business tax bill may be different, most share very unique opportunities to reduce your business's taxable income, generate tax savings, and even potentially generate a tax return.

Tax Credits Are a Small Business Best Friend

Another key way the government supports small business growth is by extending a variety of tax credits aimed at lowering a small business's tax bill. Taking advantage of available credits is one of the top small business tax tips because they represent a chance for small businesses to deduct significant sums right off of their tax bill.

Small Business Income Tax Credits vs Income Tax Deduction

For clarity, tax credits are different from a tax deduction, such as the home office deduction.

  • tax deduction will reduce the amount of taxable income prior to calculating the amount of income taxes you owe.
  • A tax credit can reduce the amount of federal income tax you owe or increase your tax refund. Some tax credits can even create a tax return even if you don't owe taxes.

And unlike tax deductions, small businesses don't have to calculate allowable percentages when they claim them. While both income tax credits and deductions can be your friend during tax season, credits clearly make the biggest bang.

Work with an Experienced CPA for Tax Preparation and Planning to Maximize Impact

It's imperative to work with an experienced tax professional at tax time and throughout the year to receive tailored small business tax advice. Although most businesses may see the professional fees of a tax advisor as an expense, it's an investment that pays dividends. 

Track Every Business Expense

The next tip that's often overlooked by small business owners is to be fanatical about documenting business expenses. Collecting receipts is the best way to maximize business tax deductions at year's end. 

That's because many of your business expenses may be tax-deductible, which means you can deduct the expense from your taxable income on your tax filings. It's important to realize, however, that tax deductions don't directly reduce your tax bill. 

Instead, they reduce your total amount of business income that's subject to taxation. So, they won't save a small business as much money as tax credits will. But tracking business expenses as a way of maximizing tax deductions is an important way of minimizing tax liability, regardless.

Maximize Section 179 Deductions

When it comes to business-owned property and equipment, small business owners often believe that the only option is to take small deductions over time based on that item's depreciation. But that's not always true. 

Under Section 179 of the tax code, certain types of property qualify for an immediate deduction and tax benefit in the year it was purchased and placed into service.

What Purchases Qualify for Section 179?

Some of the most common types of purchases that may be eligible for the Section 179 deduction include:

  • Non-customized computer software, such as tax software
  • The purchase of a facility to conduct business or research
  • Property used to support manufacturing, production, and transportation
  • Buildings for keeping livestock or horticulture products

Of course, there's plenty of nuance in the tax code, so it's best to consult a qualified tax professional before attempting to claim any of the available Section 179 tax deductions. But when applicable, this is certainly one of the most valuable small business tax tips.

And best of all — the cost of consulting a tax professional about Section 179 deductions is yet another deductible business expense and can help lower your business taxes.

Claim the Qualified Business Income (QBI) Deduction

Another of the most overlooked small business tax tips is to claim the qualified business income (QBI) deduction. It can reduce a small business owner's taxable income by as much as 20%.

And as previously noted, reducing taxable income is an important step toward minimizing tax liability. Just like claiming deductions for business expenses, claiming the QBI deduction can reduce the income for which you must pay taxes.

On its own, the QBI deduction is one of the largest single business tax deductions available to owners of small businesses. So, it's worth looking into as a means of reducing your tax liability even if you're not sure you qualify.

Reduce Tax Liability With Retirement Accounts

As a small business owner, you know that saving for retirement is important. But you may not know that setting up retirement accounts — for yourself and employees — is one of the most overlooked small business tax tips.

Tax-advantaged retirement accounts offer another way of lowering taxable income and reducing overall income tax bills. For employees, contributions to retirement accounts lower the amount of income tax they have to pay.

Depending on the type of account, they may not see a tax bill on their contributions until they're withdrawn in retirement. And because their total income won't be as high then, they'll pay less income tax on their savings in the long run.

And for business owners, retirement accounts are even more beneficial, tax-wise. It reduces your business's taxable income and therefore each year's tax bill. But they also save money on business taxes because contributions to such accounts aren't subject to federal unemployment taxes. Those levies represent a significant chunk of a small business's yearly business taxes.

Contact John F. Dennehy CPA

Whether it's your business or personal tax return, the team at John F. Dennehy CPA can help. We specialize in offering small business tax planning and preparation. Our services are designed to minimize tax liability — including payroll taxes or self-employment tax — and maximize return.

Contact John F. Dennehy CPA today for expert tax assistance.

About the Author John F. Dennehy Jr., CPA, PC

We at John F. Dennehy CPA are a team of certified public accountants who service clients throughout Long Island. The services that we provide are comprehensive, and we can resolve multiple accounting needs for a client.

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