Each year, the tax credits and deductions offered to small businesses change. With a little planning, you can help minimize your tax burden by taking advantage of the deductions you are entitled to. The Internal Revenue Service website offers a high-level summary of deductible business expenses. Be sure to gather documentation to support your spending in these areas.
The American Taxpayer Relief Act allows businesses with up to $2 million in annual revenue to deduct up to $500,000 in qualifying capital expenditures in 2013. Eligible purchases include computers, furniture, manufacturing equipment, vehicles and certain business software, according to the IRS. You can read more about eligible business deductions in “Electing the Section 179 Deduction” on the IRS website.
Insurance premiums related to liability, malpractice, workers’ compensation and property coverage are usually deductible as business expenses. Commercial vehicle premiums and life insurance coverage for officers and employees may be deductible, though rules vary depending on the type of business you own and your location, so it’s best to confirm eligibility with your tax adviser. Learn more about insurance deductions in the “Insurance” Section of IRS Publication 535, “Expenses.”
A portion of the health insurance premiums you pay may also be deductible. If your company has fewer than 25 full-time equivalent employees with average annual wages of less than $50,000 and you pay at least half of your employees’ health insurance premiums, you may be eligible for a tax credit of up to 35 percent of the cost, under the Small Business Health Care Tax Credit. This amount is slated to increase in 2014. The IRS includes an overview of this tax credit.
Donations made to qualified charitable organizations may be tax deductible by your business, if they meet certain guidelines, according to the U.S. Small Business Administration. In addition to qualifying cash donations, businesses can also deduct the fair market value of donations of property, inventory and some aspects of volunteer time, such as the costs associated with hosting a fundraising event. The SBA offers an overview of the charitable giving tax deduction.
If you updated cooling or heating equipment in your building or made other energy-efficiency upgrades, be sure to look for qualifying tax credits. The SBA has more information for manufacturers, home builders and commercial building owners, as well as details on incentives for businesses that purchase hybrid, electric and alternative fuel vehicles.
Some tax credits and deductions were extended through the end of 2013 for businesses that hire qualified veterans or employees with disabilities. For example, employers can reduce their income tax liability as much as $9,600 per qualified veteran hired under the federal Work Opportunity Tax Credit.