If you run a small business in the North Bay area, then you know how important it is to claim all possible deductions during tax time.
Make sure you’re not leaving money on the table. Here are a few tax deductions for small businesses in 2019 that are not to be missed.
The qualified business income deduction. This is a new one ushered in by the Tax Cuts and Jobs Act. Under the new law, small businesses get a 20% qualified business income deduction—meaning 20% of your income is now non-taxable.
This deduction is mainly for businesses other than C-corps – so, for example, S-corps, sole proprietorships, and limited liability corporations.
To qualify, you need to make less than $157,000 for a single person or $315,000 for a married couple filing jointly. Some professions, such as doctors and lawyers, may not be eligible for the deduction.
The Family and Medical Leave Tax Credit. Businesses are now given a 12.5% tax credit for wages paid to employees on family and medical leave – more if you pay more than half the employee’s usual salary.
There are some restrictions on when the credit can be taken. For instance, to qualify, your company must have told employees about your paid leave practices before December 31, 2018 and the employee in question has to take at least two weeks of leave.
The Section 179 deduction. If you made a big purchase in the previous year, you can now deduct up to $1 million on that purchase. This is a big jump from the previous allowable deduction of $500,000.
The tax code is pretty specific about what can be immediately deducted, rather than depreciated. These include computers, vehicles, equipment and machinery.
Business vehicles. If you use your car in running your small business, you can deduct the cost of owning it.
There are two ways to deduct vehicle expenses for a small business: Standard mileage and actual expenses.
For standard mileage, you track the number of miles you drove for your business throughout the year. Multiply that by the standard mileage rate, and you get your deduction.
The standard mileage rate is different every year. In 2019, it’s 58 cents per mile.
The actual-expenses method requires you to keep track of three things: the number of miles you drove for business, the number of miles you drove total, and all the expenses of running your vehicle, including gas, insurance, repairs, registration fees, and more.
At the end of the year, calculate the percentage of miles driven just for business—and then multiply the total amount of your expenses by that percentage. This one is more work-intensive, but it often results in a bigger deduction.
No matter which method you choose, however, it’s crucial to take detailed notes about the miles you drove for business and the reason.
Advertising and marketing. This might be obvious, but it’s important to remember to deduct everything you spend on advertising and marketing. This includes your Facebook and Google Ads campaigns as well as traditional methods such as direct mail, billboards, business cards, and brochures.
All actions surrounding producing sales and marketing collateral – such as printing, graphic design, mail costs, and more – are also deductible.
Business insurance. This includes most forms of insurance you buy to keep your business running, comply with state and federal law in your industry, and cover your employees. Types of coverage include:
- Liability coverage
- Group health, vision, and dental insurance for your workforce
- Professional liability and malpractice coverage
- Workers compensation
- Car insurance
- Life insurance that covers employees (you and your business can’t be a beneficiary)
- Business interruption insurance
- Cyber insurance
Health insurance and healthcare. As a business owner, you’ll most likely have to provide health insurance for yourself. You can deduct insurance premiums, as well as other healthcare costs such as co-pays and prescription drug costs.
If you pay for the policy that covers your spouse and dependents, you can deduct that, too. But you can’t deduct premiums you pay through a spouse’s employer.
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These are only a small amount of the deductions you’re entitled to take at tax time.
Tax season is fast approaching and it’s a great time to get your finances in order with the help of a professional bookkeeper. Get in touch for a free consultation at our San Rafael office today.