Understanding Tax Laws to Save Your Business Money

If only the tax law was in plain English, we could minimize tax bills and operating a small business would be nearly painless. As it stands now, most business owners are throwing away the chance to place thousands of dollars back in their pockets.

The tax code is complex and frustrating, but it’s the perfect legal approach to reducing your tax liability. By utilizing all the deductions your business is eligible for, you could keep more profit and pay fewer taxes.

The following are a few of the top tax deductions for businesses.

Work Opportunity Tax Credit

For more than a decade, the government has offered tax credits to companies that hire welfare beneficiaries, disabled people, at-risk youth, ex-felons, and veterans. President Obama has expanded the law, increasing the category of individuals eligible for these benefits. The objective is an incentive for companies to hire disadvantaged candidates, as well as to promote equal opportunity employment.

Start-up Deductions

Thinking of starting up a business? You can deduct up to $10,000 of your start-up expenses. These typically include deductions like research, promotion and marketing costs, and any supplies and expenses before the doors open. Businesses can choose to deduct or amortize certain start-up costs.

Home Office

Millions of businesses are operated from home, opening the door for a wide range of depreciation and deductions. Approximately one in four households have a home office, yet many do not accurately claim deductions. You can legally claim a home office deduction if you meet three qualifiers.

First, your home office has to be your principal place of business. Second, you must have an identifiable space that you call your office. This doesn’t have to be limited to a full room; it can be a fraction of a room. Third, the area must be exclusive for your business, meaning it cannot double as a child’s play room. If you qualify for a home office deduction, based on the square footage, you can deduct a portion of your mortgage or rent. This also extends to a portion of your electricity bill each month, and any other utility bills.

A home business can be a terrific tax shelter, as long as your goal is to make a profit. If the business loses money, simply offset your income. When it doesn’t always pan out, a home-based business can still be a tax benefit.

Affordable Care Act

This is an impressive new tax credit for small business owners who offer health insurance to their employees. Businesses with less than 25 full-time workers who average salaries are less than $50,000 can receive a tax credit up to 35 percent of the health insurance cost they provide for their employees. For a business to qualify they must pay a minimum of 50 percent of the employee’s health insurance premiums.

Bad Debts

Did you deliver work to a client and they failed to pay you? For the past few years, many small business owners have taken a dent in income when clients couldn’t pay up. Rarely do small business owners, especially home-based businesses, utilize this tax deduction. A bad debt is deductible if you declare income. For example: You invoiced a client in December 2012 and you have declared all income derived on your 2012 tax return. The client has refused to pay you and you realize it’s a done deal, and you stop the chase. You can declare that invoice bad debt and take a bad debt deduction.

Becoming tax savvy is a money-saving opportunity for businesses to utilize the tax law and keep more of their hard-earned money.

Author Bio: Andrew Deen is a writer who produces informative articles in relation to law. This article offers tax tips for businesses and aims to encourage further study with a Paralegal Degree Online.