If you run a small business, you’ll want to get every tax break you can legitimately claim. The Small Business Administration and the Internal Revenue Service highlight some of the frequently asked questions and commonly overlooked areas for tax credits.
IRS says yes to digital receipts
Before getting into tax credits, make sure you’re following the simplest and most fundamental rule for deductions by keeping receipts from the start of every tax year. It may feel petty at times, but the dollars and cents add up. The good news is that you don’t have to live with a mountain of paper scraps to benefit from the savings. There’s no need to fling crumpled receipts into a basket or into a bunch of paper grocery sacks. Many small business owners and taxpayers don’t realize that scanned and digital photo images of receipts have been accepted for tax filing and audit purposes by the IRS since 1997. As long as these can be reproduced if required, you’re all set. Scanned or photographed electronic images accepted include original receipts, and credit card receipts and credit card statements that show the amount, date of payment, and the vendor or merchant. Keep business and personal records separate and retain backups for at least seven years.
1. Pension plan startup credit
Small businesses with under 100 employees who earned at least $5,000 in the previous year can get a break on offering a new qualified retirement plan for their employees. A tax credit for starting up a retirement plan provides small businesses with up to $500 per year for three years as an incentive to cover the cost of setting up, which includes administering the plan, briefing and enrolling employees. Details for the pension plan credit are found on IRS Form 8881.
Meanwhile, more states are establishing mandated retirement programs for private sector employees, which may be ideal for some small businesses. As of mid-2017, the states included are Washington, Illinois, Oregon, California, Connecticut, Maryland, Massachusetts, and New Jersey.
2. Barrier removal tax deduction
The removal of architectural or transportation barriers to comply with accessibility standards can attract a tax deduction of up to $15,000 per year. Qualified expenses for tax deductions include the work for accessible parking spaces, ramps and curb cuts, as well as adjusting walkways, entrances, doorways, drinking fountains, and restrooms for wheelchair accessibility by employees. According to the IRS, “Small businesses can use these incentives in combination with the Disabled Access Credit if the expenditures incurred qualify under both Section 44 and Section 190.”
3. Home office deductions
Non-traditional home offices can also qualify for a tax deduction. Do you run your business from an at-home office, a garage, a garden shed, or a basement? When part of your home, or even a separate structure not attached to your home, is used regularly and exclusively as a home office or a place to meet with clients, you can claim deductions for using that space. Deductions correspond to the percentage of home to office square footage. Eligible deductions include the business portion of real estate taxes, mortgage interest or rent, utilities including cell phone charges, insurance, maintenance, repairs, supplies, and depreciation. Use IRS Form 8829 for a write-off on Schedule C that reduces your SE income and tax.
4. Changing IRS mileage rates
Most small businesses have one or more vehicles dedicated to business use. When personal vehicles are used for work, small business owners can use the standard mileage rate or keep track of actual expenses. Staying current is important as official mileage rates can change year-to-year.
The IRS mileage rates beginning Jan. 1, 2017 for the use of a vehicle are actually down somewhat from the previous year.
- 53.5 cents per mile for business miles, a decrease from 54 cents in 2016
- 17 cents per mile for medical or moving purposes, down from 19 cents in 2016
- 14 cents per mile driven in service of charitable organization, unchanged
Stay current and take professional advice. To uncover every small business tax credit opportunity and decide which works best for your small business, consult with your tax advisor.
This article was written by Laurie Jo Miller Farr for Small Business Pulse