Taxes. They’re a constant presence for any startup. No matter whether you just started earning revenue or you’re a mature veteran, taxes are an important expense item that can be a drag on your bottom line. An effective tax strategy can make all the difference between success and failure, especially in your early years.
Fortunately, there are a number of steps you can take to minimize your tax exposure and reduce their impact on your profitability. Businesses can take advantage of a wide range of deductions. In fact, there are so many available that it can be hard to know exactly which ones are right for you.
You’re probably aware that you can deduct most business expenses like salaries, advertising, travel and more. There are other deductions, though, that may not seem obvious for your business. Below are a few deductions you may want to consider as you develop your 2019 tax strategy. They could reduce your tax costs and boost your bottom line.
Did you invest money to launch your business? Those expenses may count as your very first business deduction. If your startup costs were less than $50,000, you can deduct up to $5,000. If your costs were between $50,000 and $55,000, your deduction limit may be reduced. And if your costs were greater than $55,000, you can’t take the deduction. If you’re in your first year of business, be sure to keep good records of your expenses during launch so you can take advantage of this deduction.
Research and Development Credit
Think research and development is just for medical and tech companies? Think again. The IRS offers a sizable tax credit to any company that is developing new strategies and solutions for their customers. There are a wide range of products and services that qualify for the R&D credit, including software, physical products, and more.
Under the new tax law, companies with less than $5 million in annual revenue can apply for a $250,000 R&D credit to offset their FICA payroll taxes. You can apply for the credit for five years, giving you a potential $1.25 million in tax credits.
Do you use any equipment or machinery in your startup? If so, that equipment could help you get a sizable deduction. Businesses can deduct expenses for depreciation, which is the normal decline in value for equipment due to wear and tear.
Under the new tax law, small businesses can deduct up to 100 percent of the value of any personal property used for business purposes. The only requirements are that the property have an expected useful life of at least 20 years and that you bought it from someone who isn’t a relative.
Software Subscription Costs
Even if you don’t use equipment in your business, it’s likely that you use various kinds of software. You may have a contact management system, a content marketing or social media platform, bookkeeping software or more. In fact, the average small business uses between 16 and 20 apps. You can deduct the subscription costs for those apps as a business expenses.
This is just a sampling of some of the deductions that may be available to you. The best way to make sure you take advantage of all possible deductions and credits is to work with an experienced and skilled accounting company. And guess what? You can deduct those costs too. Contact airCFO today to learn how we can help you manage your tax strategy.