Taxes and Accounting

Small business tax credits and deductions

It's never too early to prepare for tax season. Learn how to get the most out of business tax deductions and credits.

Published: July 01, 2015
Updated: May 01, 2018

Trim your business' tax bill by taking full advantage of the following credits and deductions.

A list of small business tax credits

A tax credit is a dollar-for-dollar reduction of what you owe in federal taxes. Here are some important credits to consider:

  • Health care credit: By paying premiums on behalf of your staff you might be able to claim a tax credit of up to 50% through the Small Business Health Options Program (SHOP) Marketplace. To qualify for the SHOP credit your business must have no more than 25 full-time employees, pay an average wage of less than $53,400, and pay at least 50% of your employees' premiums.

  • Plug-in electric vehicle credit: This credit could save you up to $2,500 for using plug-in electric vehicles for your business.

  • Alternative motor vehicle credit: If you use a fuel cell motor vehicle for business, you may be able to claim this credit of up to $4,000 or more. The credit amount depends on the weight of the vehicle as well as when it is placed into service.

A list of small business tax deductions

Tax deductions reduce your taxable income. There tends to be more available deductions than credits. However, deductions are generally not as valuable as tax credits because they only reduce your tax liability by the amount of the deduction times your marginal tax rate.

Here are some of the most important ones:

  • Self-employed health care deduction1: If you are self-employed, you may be able to deduct the amount you paid for health insurance premiums for yourself, your spouse, and your dependents. This deduction is taken on Line 29 of Form 1040.

  • Start-up deduction: With this deduction you can possibly deduct up to $5,000 of startup costs as well as up to $5,000 of organizational costs.

  • Equipment deduction: With the "Section 179" deduction you may be able to claim the equipment you purchase for your business, such as computers, off-the-shelf software, furniture, and vehicles. The maximum amount you can claim is $1 million for 2018.

  • Training and professional fees deduction: If you attend training seminars or pay fees to join a professional organization, you may be able to claim these costs in full. You can do the same for lawyer, tax specialist, and consultant fees — with the exception that the work they do for your business may have to be deducted over the life of the service provided.

  • Business travel deductions: It's generally possible to deduct business travel expenses, including taxi and airfare, train and bus tickets, and the price of lodging. This may include 50% of meal and entertainment expenses. There are restrictions related to conventions, cruise ships, and overseas travel, so check before claiming this deduction.

  • Personal vehicle deductions: If you use your personal vehicle for business travel, you may be able to deduct the cost of using it. Most people claim the 2018 standard mileage rate of $0.545 for each mile driven for business.

  • Home office deduction: If you use part of your home frequently and exclusively to do business, it may be possible to claim the home office deduction. This could cover insurance and rent costs as well as phone and internet bills for the portion of your home you use for business.

  • Charitable donation deductions: Your business' charitable donations may be deductible.

Don't miss opportunities to cut your taxes by keeping these business credits and deductions in mind.


1"Don't Miss the Health Insurance Deduction if You're Self-Employed." IRS. http://www.irs.gov/uac/Newsroom/Dont-Miss-the-Health-Insurance-Deduction-if-Youre-Self-Employed

 

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