Tax Tips for Small Businesses

As a small business owner, you take on a lot of different responsibilities. Whether you’re navigating the system on your own or working with a tax professional, make sure you’re aware of these helpful tips when filing taxes for your business.

  • If you work from home, deduct your dedicated workspace! As long as your work area is your primary place of business, and has a dedicated space, you can deduct it from your taxes. This means that working from your dining room table won’t count, but an office space or desk in the corner of your home will.

    To figure out how much you can claim, either track your spending related to housing for the whole year and multiply that number by the percentage of your home used by your business or deduct $5 for every square foot of your home used for business. 

  • Know the differences in taxes for types of entities! There are some major tax differences for sole proprietorships, partnerships, LLCs, and corporations.

      • Sole proprietors are viewed as one with their person and entity, so their assets and liabilities can all be claimed on the owners 1040. However, owners of sole proprietorships may be able to claim up to 20 percent of their business income. Here’s some information on how to find out whether your business qualifies.

      • Similarly, a partnership will be claimed on both the owners 1040 in accordance to how owners have formally agreed to split profits. The main difference is that partnerships must fill out a 1065 to report profits and losses.

      • LLCs offer the same pass-through treatment as sole proprietorships and partnerships, but with more liability coverage. Depending on whether the LLC is single or multi-person owned will determine how to file, either as a sole proprietorship or partnership.

      • S and C Corporations may sound similar, but some key things set them apart. S corporations may file with pass-through status, the owner will need to file some of their income with a W-2 for wages and some as profit. Additionally, S corporations are required to file an 1120s. C corporations on the other hand, are entirely their own entity and separate from the owner in respect to taxes, meaning they do not benefit from a pass-through. They will need to file business taxes separately, and file an 1120.

  • Did you purchase equipment this year? Take advantage of Section 179! This code is a deduction that takes the depreciation value of your gear into account. You can claim this and get one lump sum to cover your depreciating assets. Your assets must be used solely for business purposes more than 50% of the time. If you do not use it solely for business purposes, just claim the full amount multiplied by the percentage of time it’s used for business. For example, if you bought a piece of machinery that’s used solely for your business at $50,000 which would depreciate by $10,000 a year, you can claim $50,000 for the 5-year depreciation in one lump sum now. For more information, see here.

  • Keep track of your contracted labor. Whether you have someone in to fix your home office’s internet or hire a graphic designer to refresh your logo, these expenses may be small but can add up at tax time. Just remember, if you pay more than $600, you must have the contractor fill out a 1099-NEC.

  • Thanks to a COVID-19 relief bill, you’re able to deduct 100% of business-related food expenses. Whether you took out or ate in, you can write off meals from 2021 in your taxes.

When you know the tips and tricks for filing your business’ taxes, you can make more informed decisions on how to spend your money. For more ways to maintain your business’ financial assets, schedule a meeting with a financial advisor!

Pioneer and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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