Tax Write-Offs For New Business Owners
As a new business owner, you may not know all the tax write-offs available to you. I sure did not, but with the help of my trusted CPA I am getting more and more familiar the more seasoned I become. I am going to share with you a few that I have come to know quite well over the last several months.
But first, What is a write-off anyway? A write-off is an accounting action that reduces the value of an asset while simultaneously debiting a liabilities account. It is primarily used in its most literal sense by businesses seeking to account for unpaid loan obligations, unpaid receivables, or losses on stored inventory. Generally, it can also be referred to broadly as something that helps to lower an annual tax bill.
Here are 5 Write-Offs to take advantage of if you’re a business owner:
1. Startup And Organizational Costs
As a new business owner, there are certain costs associated with getting started in business called startup and organizational costs. Be sure to keep a record of these deductions because the IRS allows you to write off up to $5,000 worth of startup expenses made in the first year of business. If you spend more than $5,000 in your business the first year, the amount in excess would be considered amortized expenses and is able to be written off over the course of 180 months. So until your business is considered “operational” you are not able to take 100% of your expenses but are limited to $5,000 worth of expenses.
2. Equipment Costs
As a business owner, you have the ability to write off your equipment. This is a no-brainer if you are a dental professional. Even If you purchase items through Amazon or other stores of the sort for products and equipment, as long as those expenses are considered business equipment costs and not personal expenses, you can receive a tax deduction for it. At the beginning of my business, what became really important to me was that anything eligible I spent my money on was being written off by my business.
3. Business Meals
Thanks to the Tax Relief Bill that was implemented by the Trump administration as well as the Biden administration you are able to deduct 100% of your meals in the year 2021 as long as there was a business purpose for the meal. So, if you choose to conduct business in a restaurant or you are ordering food for the office, your business-related meals are now 100% deductible - hello dinner team meetings! Make sure that you keep a record of your business meals as well as the purpose of the meal.
4. Your Vehicle
If you saw this post you know that I am writing off my vehicle since I use it for my business. If you have a vehicle that you are using for a business, it's so important to understand how to take a vehicle deduction and how to properly depreciate your vehicle. There are two ways to go about writing off your vehicle, you can
choose to depreciate your vehicle (e.g., taking the purchase amount of your car and writing it off over the course of five years) or you can
choose to take mileage - the mileage is helpful if you drive frequently since there is a set amount, 57.5 cents, that you can deduct per mile of a business-related trip.
When you are depreciating your vehicle you are also able to write off all the expenses associated with that vehicle. When it comes to purchasing new vehicles, you might want to look at buying one that meets specifications (such as weighing more than 6,000 pounds). If a vehicle meets the criteria, including being used for business purposes more than 50% of the time, you may be able to deduct the entire purchase price of the vehicle – financed or not – in the year the car was purchased. What this means is, if you are someone who is in need of a new vehicle for work, you can purchase it and write off 100% of your vehicle purchase amount, whether you make a down payment on the car to finance or if you paid cash. Lastly, you can also write off a leased vehicle's car payments through the business. However, when you are leasing a vehicle you are not able to take the depreciation deduction.
5. Place Your Children On Payroll
Braxton is not of age just yet, but when he is I will definitely be putting him on payroll. If you have children that can do tasks that are ordinary and necessary for your business, this is a great time to grow money for your kids tax-free. Many of us know the benefits of having a Roth IRA and that children can have Roth IRAs, but many taxpayers aren't sure as to how to go about growing tax-free dollars for their children while leveraging a business. When you decide to put your children on payroll, there are no payroll taxes you have to pay on the amounts. You can pay your child up to the standard deduction, which is $12,400, without your child needing to file a tax return. Now as a business owner, you get a $12,400 deduction for putting your child on payroll, without having to file a tax return, and no payroll taxes get paid. On the backend, you can also set up a Roth IRA for your children, place them on payroll and fund the Roth IRA through the payroll #WIN.
Since becoming a business owner, my mindset towards money and taxes have completely shifted. When you are a business owner, you should always be thinking about how you can leverage savings on the things that you are already spending money on. You should definitely speak with your CPA or trusted tax advisor to ensure you are leveraging your business the right way.