These days, the importance of having a solid financial future is evident. Taxes are just one aspect of money management that can make or break your business. Here’s some good news, though: There are various ways to save on business taxes. This article will offer seven tax tips that can help you save thousands of dollars and better plan for your company’s financial future.
Leverage Tax Benefits and Save Your Business Significant Money
You are probably aware that there are several tax benefits available to businesses. These can include things like depreciation, which allows you to deduct the cost of certain assets over time. Another popular option is Section 179, which lets you write off most of the costs of purchasing new equipment in a single year.
These types of deductions help your business save money on taxes and serve as an incentive for people who want to start their own companies. They’re intended to make it easier for small businesses (and start-ups) and encourage investment in financially distressed areas.
Tax breaks exist because Congress recognizes that these incentives will ultimately lead to more jobs being created and higher wages being paid by companies looking for qualified workers from whom they can benefit by hiring them into full-time positions with benefits packages included (and those aren’t cheap).
File for Employee Retention Tax Credit
The employee retention tax credit is a federal tax credit for employers who hire and retain employees. This doesn’t sound very easy, but it’s not! The bottom line is that this tax credit can save you thousands of dollars each year by allowing you to claim the wages paid to your employees against your company’s taxable income.
So, if a company has five employees with annual salaries of $50,000 each (i.e., $250,000 total), then they will likely be able to reduce their taxable income by $250,000 for that year. This could result in significant savings on federal and state taxes at the end of the year!
IRS Form 3468 is the form you use to claim the ERTC tax credit. If you have a small business and are trying to save money on taxes, then using this form will be highly beneficial to you.
The Energy Efficient Commercial Building Property Tax Deduction
The Energy Efficient Commercial Building Property Tax Deduction is a tax credit for businesses that install energy-efficient lighting and other equipment in commercial buildings. The tax credit is available for 10% of the installation of energy-efficient lighting and other equipment, such as LED bulbs, high-efficiency motors, high-efficiency fans, windows with tinting or reflective coatings, etc.
Install Solar on Commercial Building Property
If you are a business owner and install solar power or renewable energy systems at your commercial building or factory, you may be eligible for a tax credit. The tax credit can be as high as 30% of the cost of installing these systems. To claim the tax credit, some requirements need to be met:
- The renewable energy system must be installed on property owned by the taxpayer in service before January 1st, 2019.
- Only one such system can be claimed per taxpayer.
Claim a Business Tax Credit
A business tax credit is a dollar-for-dollar reduction in the amount of taxes you owe. There are many types of business deductions worth claiming on your taxes—but some may be more valuable than others depending on how much they save or what kind of financial burden they relieve.
For example, if your business owes $1,000 in income tax for the year and has a $500 deduction for office supplies, you can use this credit to reduce your taxable income by $500, which lowers your tax bill from $1,000 to $500.
The 50% Bonus Depreciation Allowance
The 50% Bonus Depreciation Allowance allows businesses to claim a bonus depreciation deduction for purchasing qualifying assets in the same year that they are placed in service. This can help you save thousands of dollars on your taxes and increase the value of your business. Here’s how it works:
- You make an eligible purchase from a qualified equipment manufacturer (QEM).
- The QEM must use MACRS depreciation, different from standard straight-line depreciation methods.
- You place the equipment into service during or after 2018 and before 2023, or you start construction on building property before 2022 and put it in service before January 2026.
You can claim up to 100 percent bonus depreciation in 2019 through 2021; this will be reduced each year until it reaches zero by 2022 (the last year that bonus depreciation is available). If your business makes several large purchases this year, these rules could result in significant tax savings.
The allowed amount was increased significantly for 2019 because Congress wanted companies with substantial capital investments–such as construction firms–to benefit from higher deductions immediately rather than wait until 2022, when inflation would reduce their value anyway.
Claim Tax Credits for Alternative Fuel and Exempt Vehicles
You may be able to claim tax credits for alternative fuel and exempt vehicles. What are alternative fuel and exempt vehicles? Alternative fuel or exempt vehicles qualify for special tax credits of up to $8,000 per vehicle. You can use the credits in two ways:
To reduce your taxable income now, you can claim these credits as a tax deduction (but not past 2015). If this is the case, we recommend speaking with a CPA who specializes in business-related taxes so they can advise you on how best to utilize this deduction.
Or, if you’re selling an eligible vehicle within ten years after purchase, you can also take advantage of depreciation benefits and spread out capital gains payments over time based on when the vehicle was purchased and sold.
Conclusion
Your taxes can be a great source of savings. If you start with the basics and then look at the various tax laws that apply to your business, you’ll be able to save money every year. This will allow you to reinvest more in your business and increase profits. Schedule an appointment with a tax professional today to learn more about how your business can save money through taxes.
