While you should talk to your accountant or tax preparer about tax strategies specific to your business, there are some tax strategies that small business owners can use to reduce their business income tax bill.
Here are a few tax strategies for small businesses:
Buy a big, heavy vehicle
Section 179 of the U.S. Tax Code allows an instant depreciation deduction privilege of up to $25,000 of the cost of a new or used heavy SUV that’s placed into service before the end of your business tax year.
After that deduction, follow the “regular” tax depreciation rules to write off what’s left of the business portion of the heavy vehicle’s cost over six years.
To qualify, the “heavy” vehicle must have a manufacturer’s gross vehicle weight rating above 6,000 pounds, and must be used for more than half of the time for business. The weight rating can usually be found on a label on the inside edge of the driver’s side door at the hinge.
The maximum write-off is $3,460 for new light trucks and vans (or $11,460 if first-year bonus depreciation is restored) and $3,160 for new cars (or $11,160 if bonus depreciation is restored).
Again, tax law changes happen every year, so check with your tax preparer to be sure this deduction still applies.
Defer income, increase deductions
Your share of your business income is reported on your Form 1040 and is taxed at your personal rates. If you expect to be in the same or lower tax bracket, defer income into next year while accelerating deductible expenditures into this year.
The moves should at least postpone part of your tax bill from this year to next year.
However, if your business is doing extremely well, you may be pushed into a much higher tax bracket and may want to take the opposite approach.
Accelerate income this year, if you can, and postpone deductible expenditures until next year. This strategy will allow more income to be taxed at this year’s lower rate instead of the higher tax rate next year.
You can defer income by charging recurring expenses that you’d normally pay early next year on credit cards. The deductions can be claimed this year, while the credit card bills are paid next year.
Real property deductions
Section 179 also allows an deduction of up to $250,000 for expenditures on certain types of real property. These are: interiors of leased nonresidential buildings, restaurant buildings, and interiors of retail buildings.
Again, check with your tax preparer to ensure this deduction is still allowed.
Depreciation of new assets
A 50 percent first-year bonus depreciation for qualifying new equipment and software is allowed for businesses, on top of any allowable Section 179 deduction. This bonus depreciation was for items such as computer systems, software, machinery and office furniture.
Congress regularly allows business tax breaks to expire before extending them for a year or two. Chances are that some tax breaks that you may think have expired have been returned by Congress and can still help your business this year.