Starting your own business is an important – and exciting – time in any person’s life. So why not take advantage of the incentives in the tax code to help make it happen?
Uncle Sam provides multiple tax deductions and credits to spur new businesses, which breeds jobs and more income.
In your new business’s first year, up to $5,000 of startup costs can be written off. Startup costs beyond $5,000 have another 15 years to be written off.
Business expenses like office supplies can be up to 50 percent deductible. But as a self-employed individual, tracking your business expenses is key. Because you’re both the employer and the employee, you’ll pay both sides of the Social Security and Medicare taxes. Keeping track of all your expenses helps to lower your burden by making use of all available deductions.
Another tax break that can be used by businesses is borne from a net operating loss. That loss may be able to be carried back, providing an opportunity to get a tax refund on taxes paid two years prior.
Where your business is located can also help lower your tax bill. Check to see if your state has economic development zones. They can also be called enterprise zones, and they typically provide deductions and credits for qualifying businesses.
If your new business is in manufacturing, then chances are it may qualify for the Domestic Production Activities Deduction. This gives your business the ability to deduct 9 percent of net income if at least 20 percent of its costs come from labor and overhead due to domestic operations. The rules are tricky, but not as daunting as most people think.
Tax planning for your new business is essential for getting it off the ground. With so many incentives, working with a tax professional gives it an injection of financial support from Uncle Sam.
But having your business taxes go unpaid is a surefire way to turn Uncle Sam’s support into Uncle Sam’s wrath. The IRS goes after delinquent taxpayers and businesses with tenacity and accuracy. But working with a tax attorney can help keep the IRS agents on your business’s good side, and keep your business alive and profitable.