As a small business owner, you can utilize a proactive approach and seize all opportunities available for conducting tax deductions as provided for under the law. Overlooking certain crucial write-offs leads to a bloated tax bill. Changes to the recent tax law have altered how Section 179 on deduction on bonus depreciation works. You can maximize write-offs for your home office and get deductions for business travel and automobiles, along with tax shelters for real estate property.
- Tapping into Major Tax Savings as per Section 179 Depreciation
A small business can benefit through a huge increment in the First-Year depreciation allowance as covered by Section 179. Following this law, you can deduct the full cost of most used and new business personal property. The maximum amount provided for here got gradually boosted for 2009 from $25,000 to $250,000. Later on, the 2012 American Taxpayer Relief Act (ATRA) preserved the $500,000 maximum deduction adopted by the 2010 Small Business Jobs Act for two years. This provision was backdated to the 1st of January 2012 and remained effective through 31st December 2013.
- Claiming Bonus Depreciation for All Qualified Assets
A business can lay claim to “bonus depreciation” for assets that are qualified and placed in service during the whole year. This business tax credit applies to the following:
- Property with 20 years or below of cost recovery period
- Qualified leasehold improvements
- Depreciable software which is not amortized for over 15 years
- Water utility property
- Triggering Quicker Write-Offs as per Section 179 Depreciation
It is possible to maximize Section 179 expensing deduction by undertaking some shrewd planning of your taxes through the ways below:
- You can claim the allowance accrued through compensation payments if your company zeroes out its taxable income. The tax law limits annual deduction to the amount of income taxable.
- Boost the limit of your business income, which should include that accrued from your active businesses.
- Maximize business percentage if claiming allowance for assets partially utilized for non-business reasons.
- Larger Deductions for ‘Heavy’ SUVs according to Section 179
If you opt to deduct the annual expenditure as opposed to using standard mileage allowance, take note of an appreciably large tax advantage if owning heavy-duty vans, pickups, and SUVs. These vehicles have gross vehicle weight rating or GVWR of over 6,000 pounds from the manufacturer and are viewed as “trucks” for purposes of taxation.
Such heavy-duty vehicles depreciate more rapidly than regular passenger vehicles when used intensively for business purposes.
- Deductions of Fuel Tax for Business Vehicles
You may deduct automotive expenses via a standard mileage rate, set each year by the IRS. Doing this sets you free from having to account for actual expenditure incurred. For instance, business drivers got 56.5 cents for each mile in 2013.
- Tax-Free Family Vehicles as part of Business Deductions
Operation and maintenance costs are deductible for cars utilized in doing business, which includes depreciation. Your auto repair firm may provide cars for the whole family in this case. The business you own can deduct the entire amount of operating costs if your family members are employed by the enterprise. Car expenses which are deductible include:
- Cost of gasoline
- Interest on car loans
- Garage rents
- Parking tolls and fees
- Writing off Home Furniture and Computer as part of Self-Employed Tax Deductions
Under Section 179, many taxpayers who are self-employed may deduct purchases for equipment, as opposed to capitalizing them. This section applies to the vast number of business assets, including furniture and computers meant for domestic use.
- Owning Your Business Premises
Once the profits of your company start growing and business stabilizes, consider owning as opposed to renting your quarters. When evaluating the comparative costs, think of a reasonable time period, such as 10 years and factor into your calculations purchase price of your desired building at a prime location.
- Sheltering Real Estate Property of up to $25,000
Prices of real estate have recently gone down in many places, presenting great opportunities for investment. As well, business owners can enjoy tax shelters for investing in property. One has to own a 10 percent minimum portion of such investment property without involving limited partnership interests, apart from actively managing it. A business tax credit of 10 percent is available too for fixing old buildings, which changes to 20 percent if the building has historic significance.
- Turning Home into Rental Property
Many homeowners have been adversely affected by the recent devaluation in real estate property. This even gets worse due to the inability of deducting a loss from selling your principal residence.
Turning your home into a rental property is a brilliant strategy in such situations. You only require holding it out for rent while relocating, before deducting losses once the place is sold. This is a shrewd tax move that capitalizes on an important distinction that applies to business or investment property.