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7 Simple Tax Breaks Small Businesses Always Overlook

August 19, 2013 by Ed Becker

Tax Breaks

Tax return preparation is a daunting task for Fortune 500 companies and sole proprietors alike. Every business has a unique financial strategy, but one goal is consistent across the board – pay less taxes! There are literally thousands of potential breaks hidden in federal tax code; it just takes some digging to find them. Let’s take a look a few simple tax breaks that small businesses are notorious for overlooking.

1. Self-Employed Health Insurance Deduction

Hopefully you don’t miss this one… The health insurance deduction is one of the most powerful tax breaks for the self-employed entrepreneur. If you purchase health, dental, or long-term care insurance for yourself or your dependents, you can deduct as much as 100% of the premiums paid from your taxes owed.

2. Non-Cash Charitable Contributions

Non-cash charitable contributions require a calculated estimate of value, therefore, many people choose not to report them at all. The Goodwill offers a convenient list of estimated values for common donations that takes the complication out of this process. Donating unused office supplies and inventory can significantly reduce your tax bill over the course of a year. Throwing this stuff in the garbage will net zero tax benefits. Plus, you’re contributing to a good cause.

3. Travel Expenses

Keeping track of travel expenses is tedious. Many business owners make multiple trips per day to meet with clients, pickup supplies, and run errands. Logging travel expenses seems like a task of minuscule importance in the grand scheme of things, but these small trips add up over the course of a year. By the time April rolls around, travel expenses may be significantly understated. Fortunately, technology is making this process much easier. The Concur iPhone App gives you the ability to log mileage, upload receipts, and do a bunch of other neat tricks while you’re on the road.

4. Business Startup Costs

Did you just go into business this year? Don’t forget to deduct your corporate filing fees, bookkeeping software, office supplies, consulting/legal fees, etc. You’re allowed to write off a maximum of $5,000 in startup costs during your initial year of business. If your initial write-off exceeds 5K, you can amortize the remaining deduction over a period of 15 years.

5. Bad Debts

Occasionally, a customer will vanish into thin air without paying their bill. If you’re a retailer, Uncle Sam allows businesses to deduct the cost of the good that was not paid. If you’re a service-based company, however, you’re out of luck on this deduction – it only applies to tangible goods.

6. Coffee and Beverage Service Tax Deduction

Need some incentive to set up a coffee bar and snack machine in the office? This tax deduction is truly a win-win for everybody. Your employees get to enjoy productivity-boosting java in the morning, while you save a bundle on your tax bill. In most cases, the coffee and beverage service can be fully deducted as a business expense.

7. The 100% Software Deduction

Traditionally, software is depreciated over a 36-month period. However, the Section 179 deduction for software placed into service prior to Dec 31, 2013, allows you to deduct the 100% of the cost in the year it was purchased. Deducting the full amount in a single year is useful for companies that require annual updates to their software suites.

These seven commonly missed deductions are just a drop in the bucket of the federal tax code. Small businesses will find that diligent record keeping and consulting from a knowledgeable CPA will help nail down these elusive breaks.

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