Don't Forget These Tax Deductions As A Small Business Owner
As a business owner, it is important to be aware of new tax deductions that are applicable throughout the year. New tax laws, incentives, and deductions can help your business get back on track by significantly lowering your costs through new deductions and exemptions. Let's go through some common deductions that you need to be aware of this year.
Here Are Four Big Deductions and Incentives You Should Remember!
1. Food and Restaurant Deduction
Most business meals and restaurant expenses are deductible up to 50% when being used for business purposes. This includes meals with clients and customers, meals while traveling (like at conferences), or meals with your employees. You may be able to deduct 100% of certain food expenses like food for holiday parties or team-building activities, snacks for customers in the office, meals for employees that they eat in the office, or food for charitable causes.
2. Business Travel Deduction
When you travel for your business by plane, train, rental car, or bus, 100% of your actual travel costs are deductible. If you decide to take your personal vehicle you would use the IRS standard mileage rate. For the tax year 2023, the IRS mileage rate is 65.5 cents per mile. For the tax year 2024, the IRS mileage rate increased to 67 cents per mile.
3. Employee Retention Credit
This deduction is focused more on small businesses that have employees who need either time off due to COVID-related reasons or for a cut in hours. Many businesses had a decrease in sales, making it very hard to keep employees on the payroll. Likewise, it was hard to conduct business if your employees were gone due to COVID. This deduction can help cover up to 70% of employees' payroll wages (capping at $10,000 per employee) for small businesses that have experienced a 20% loss of gross receipts compared to pre-COVID taxes. If you experienced trouble keeping your employees on payroll or took a large financial hit during 2020-2021, MAKE SURE to claim this deduction by April 15, 2024.
4. Bonus Depreciation
Bonus depreciation is a tax incentive designed to encourage businesses to invest in new equipment and assets (machines, desks, computers, vehicles, etc.). Bonus depreciation allows businesses to deduct a significant portion of the cost of qualifying property in the year it is placed in service rather than spreading the deduction over several years through regular depreciation. From 2014-2017, there was a 50% bonus depreciation available, providing businesses with a substantial upfront tax benefit for qualifying purchases. The Tax Cuts and Jobs Act, enacted at the end of 2018, increased first-year bonus depreciation to 100%. The 100% bonus depreciation amount remained in effect from September 27, 2017, until January 1, 2023.
Now the bonus depreciation rates are as follows:
- 80% for property placed in service after December 31, 2022 and before January 1, 2024.
- 60% for property placed in service after December 31, 2023 and before January 1, 2025.
- 40% for property placed in service after December 31, 2024 and before January 1, 2026.
- 20% for property placed in service after December 31, 2025 and before January 1, 2027.
For an asset to be depreciable, the IRS requires that it must be:
- It must be property you own.
- It must be used in your business or income-producing activity.
- It must have a determinable useful life.
- It must be expected to last more than 1 year.
Staying informed about new tax deductions is a crucial aspect of managing a successful business.
The dynamic nature of tax laws, incentives, and deductions underscores the importance of regularly updating one's knowledge to leverage potential cost-saving opportunities.
Hiring a CPA to help you navigate through the tax season can be a great way to save money! Check out TLP’s free bookkeeping referral list today!
THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. EVERY SITUATION IS DIFFERENT & IS FACT-SPECIFIC. A proper legal analysis is necessary based on your location and contract. Consult an attorney in your home state for advice regarding your contract or specific legal situation.
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