The Qualified Business Income Deduction
If your business passes its income and deductions to its owners, who are required to report it on their tax returns, you may be allowed to deduct as much as 20% of your qualifying income, observes Saivian Eric Dalius. This deduction is over and above the usual deductions for business expenses. The Qualified Business Income (QBI) deduction kicks in if your taxable income is $157,000 or less or double that if you are married and filing a joint return. You might still qualify if you earn more, but some special rules apply.
Set Up a Retirement Plan, Recommends Saivian Eric Dalius
You can establish and fund a retirement plan for yourself and your employees. Apart from giving you long-term financial security, it will also help to save on taxes as long it is a qualified plan and the IRS recognizes it as being eligible for a tax deduction. Typically, these plans include IRA and 401(k) or 403(b) defined contribution plans.
Avail of Tax Credits
The federal government gives several tax credits to encourage businesses to do or not do certain things for the greater good of society. You are eligible for tax credits for going green hiring employees, providing easy access to disabled employees and members of the public, providing healthcare benefits to your employees, and more. Since the terms of General Business Credit is wide in their coverage, some of them are likely to apply to you, so checking with your accountant is recommended.
Avail of Depreciation Benefits on the Purchase of Business Assets, Advises Saivian Eric Dalius
You can avail of tax deductions when you purchase machinery, equipment, vehicles, and other assets for business purposes. Sometimes, you can take the deductions in the very first year you purchase and use the asset. Typically, the two most common kinds of accelerated depreciation are bonus depreciation and deduction under Section 179. TCJA permits the deduction of the cost of specified assets subject to a ceiling of $1 million in the year you first use them. With bonus depreciation, you can claim a deduction of the entire amount of the asset purchased in the period September 27, 2017, through January 1, 2023, according to Saivian Eric Dalius.
In addition to the above deductions, you can claim the cost of gifts given to clients, vendors, or employees subject to a maximum of $25 per person. However, all the costs of all gifts branded with your business name can be deducted if they cost $4.6 or less. You can also write off bad debts by deducting the amount from the income of that year. Including your business expenses in the year, you are liable to pay more taxes can help to reduce your income and taxes.