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Top Five Tax Write-Offs For New Business Owners
Karlton DennisForbes Councils MemberForbes Business Development CouncilCOUNCIL POSTExpertise from Forbes Councils members, operated under license. Opinions expressed are those of the author.| Membership (fee-based)Jun 30, 2021,07:20am EDT|
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Business Development Manager atKarla Dennis & Associates INC, overseeing the Sales Department in North America. Follow me @karltondennis.
Are you a new business owner looking for tax write-offs? Maybe you just got started with your business during the early part of the pandemic. Or maybe you decided to pull open your laptop and start day trading. It doesn't matter what your business is, today we are going to go over the top five tax write-offs for new business owners.
1. Startup Costs And Organizational Costs
As new business owners, you have certain costs associated with getting started in business called startup costs and organizational costs. You must track these deductions even if you haven't made any money inside of your business because the IRS allows you to write off up to $5,000 worth of startup expenses made in your first year of business. If you happen to spend more than $5,000 in your business the first year, the amount in excess would be considered amortized expenses and is able to be written off over the course of 180 months. So until your business is considered operational you are not able to take 100% of your expenses but are limited to $5,000 worth of expenses. So you need to make sure you are keeping track of all your startup costs and all your organizational costs.
2. Equipment Costs
As a business owner, you have the ability to write off your laptop and equipment. Most new business owners spend a lot of their money shopping through Amazon or other stores for products and equipment to get their business started. As long as those expenses are considered business equipment costs and not personal expenses, you can receive a tax deduction for it. At the beginning of my business, what became really important to me was that anything eligible I spent my money on was being written off by my business.
3. Business Meals
You are able to deduct 100% of your meals in the year 2021 as long as there was a business purpose for the meal. As a part of the Tax Relief Bill that was implemented by the Trump administration as well as the Biden administration, updated laws state that if you're a business owner and you choose to conduct business in a restaurant or you are ordering food, your business-related meals are now 100% deductible. This means you can write off those meals as long as they are part of your pursuit of income. Make sure that you are tracking your business meals as well as the purpose of the meal documented.MORE FROMFORBES ADVISOR
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4. Your Vehicle
If you have a vehicle that you are using for a business, it's so important to understand how to take a vehicle deduction and how to properly depreciate your vehicle. There are two ways to go about writing off your vehicle, you can choose to depreciate your vehicle (e.g., taking the purchase amount of your car and writing it off over the course of five years) or you can choose to take mileage. The mileage is helpful if you drive frequently since there is a set amount, 57.5 cents, that you can deduct per mile of a business-related trip.
When you are depreciating your vehicle you are also able to write off the expenses associated with that vehicle. You are also able to write off a leased vehicle's car payments through the business just know that when you are leasing a vehicle you aren't able to take the depreciation deduction. When it comes to purchasing new vehicles, you might want to look at buying one that meets specifications (such as weighing more than 6,000 pounds) in code section 179. If a vehicle meets the criteria in this section including being used for business purposes more than 50% of the time you may be able to deduct the entire purchase price of the vehicle financed or not in the year the car was purchased. What this means is, if you are someone who is in need of a new vehicle for work, you can purchase it and write off 100% of your vehicle purchase amount, whether you pay a down payment on the car to finance or if you paid cash.
5. Place Your Children On Payroll
When your business is making enough income and you have children that can do tasks that are ordinary and necessary for your business, this is a great time to grow money for your kids tax-free. Many of us know the benefits of having a Roth IRA and that children can have Roth IRAs, but many taxpayers aren't sure as to how to go about growing tax-free dollars for their children while leveraging a business. When you decide to put your children on payroll, there are no payroll taxes you have to pay on the amounts. You can pay your child up to the standard deduction, which is $12,400, without your child needing to file a tax return. Now as a business owner, you get a $12,400 deduction for putting your child on payroll, without having to file a tax return, and no payroll taxes get paid. And on the backend, we can also set up a Roth IRA for your children, place them on payroll and fund the Roth IRA through the payroll. This is a way that your children can grow their money tax-free in the market.
If you are ready to take control and make sure you are leveraging your business the right way, make sure to work with a licensed tax advisor who can consult with you today. When you are a business owner, you should always be thinking about how you can leverage savings on the things that you are already spending money on.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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