For individuals, a new year means resolutions, goals and reflections. In business, those same things occur as companies try to assess, plan and adjust to try to make certain that the next year is better than the previous year.
The annual reckoning is important for any firm, whether large or small. Each year there are tax law changes and government programs that can have a significant financial impact on revenues and profits. Many small businesses don’t have the time or the know-how to keep up with all the changes annually. As a result, it is important for them to work with an experienced, reliable partner that knows how to maximize federal, state and local tax credits.
If you start a new business, you can actually deduct expenses incurred before business operations began. These costs can include things like expenses related to exploring a business opportunity. The deduction must be taken in the first year of business, and it can be as much as $5,000. If your startup costs are more, you can claim up to $50,000 amortized over 15 years. You can get full details from IRS Publication 535.
Does a vendor that has since gone out of business owe you money? If so, you might be able to take the unrecoverable debt as a tax write-off. According to IRS regulations, “you can deduct the entire amount, less any amount deducted in an earlier tax year.” What some business owners don’t realize is worthless bad debts can be fully deducted up to seven years from the original due date.
Health insurance premiums
If you are a self-employed business owner or you own more than 2 percent of an S corporation, you can deduct health insurance premiums paid for yourself, your spouse, your dependents and any child under 27. The deduction is taken as a personal expense on your Form 1040, rather than as a business expense, reports Barbara Weltman, host of the “Build Your Business” radio show.
If your business manufactures products or purchases and resells products, you can deduct costs related to your inventory, according to the IRS. This includes expenses such as storage, raw materials, shipping costs, building overhead, etc. The cost of labor to make or sell the products is also deductible, including employee costs such as contributions to retirement plans. It is important to note that expenses can only be deducted once, so if you take a deduction for cost of goods sold, you cannot deduct that cost again as a business expense.
Legal and professional fees
Fees that you pay to lawyers, tax professionals or consultants generally can be deducted in the year incurred. If the work clearly relates to future years, however, they must be deducted over the life of the benefit you get from the lawyer or other professional.
Also, interest and carrying charges of loans to finance your business are fully deductible. That includes personal loans you take out to help fund business expenses. Make sure to keep good records so you can show the money was used appropriately.
If you haven’t completed your business and tax-planning strategy for 2016, it isn’t too late. This is a great time to consult with an experienced, professional accounting firm that can help you earn a bigger profit while making sure you don’t pay any more taxes than required by law.
BeachFleischman, one of Arizona’s largest locally-owned CPA firms, provides services that help Phoenix and Tucson Arizona business owners claim federal and state tax credits and incentives. If interested in learning more about how their team of certified public accountants can help your business, please contact BeachFleischman.com or call Adam Cary, CPA at (602) 265-7011