Small business owners everywhere know the importance of running a tight ship. Rent, labor, and operating costs all hit smaller companies the hardest, so keeping cash drainage to a minimum is key.
Tax breaks, deductions, and credits are crucial for keeping small operations afloat. As helpful as these can be, they also have a tendency to be overly confusing as well. Some of the most lucrative tax benefits are all the least-known, meaning plenty of business never even know to take advantage of them in the first place.
Instead of spending hundreds of dollars or dozens of hours figuring out how to save money this coming tax season, take a look at these five overlooked tax breaks for small businesses:
- 401(k) Benefits
If you’re thinking about setting up a small business 401(k), the recently passed SECURE Act allows employers to claim tax credits if they are setting up a 401(k) for the first time. These credits can make a big difference during tax season for a small business.
Eligible employers can now claim up to $5,000 per year for up to 3 years, depending on the number of employees enrolled. That’s up from $500 per year previously. The act also created a new tax credit of up to $500 per year to employers who start 401(k) plans with automatic enrollment. So the maximum tax credit for a new 401(k) is now up to $16,500 for three years.
- Business Meals
The next time you’re planning a client or staff meeting, consider having it over a bit of food. Business-related meals can have up to 50% of their value deducted, so long as they comply with a set of standards.
For a business-related meal to be considered deductible, it needs to have direct and obvious relevance to your company’s normal operations. A sales pitch, for example, would count, while a friendly, personal meal between two employees likely would not.
You can also classify a business meal as a gift to your client. Client gifts can have up to $25 of their value deducted per client per year. In order to properly deduct a business meal, make sure you keep all receipts and preferably any relevant documentation that shows how the meal was related to your business.
- Decay and Depreciation
Most assets are subject to some kind of depreciation, and that loss in value can be written off on your yearly taxes. The actual figures for calculating depreciation write-offs are quite complex, but a few basic pointers can help you through the process.
Most business assets fall into three-year, five-year, or seven-year categories, the number of years intended to reflect how long each asset is going to be used over its entire lifetime. A simple calculation involving your asset’s category, purchase price, and salvage price will produce the amount you can write off at the end of each year, allowing you to save money as you continue to make good use of your purchases.
- Moving Locations
Moving offices can be an extremely cost-heavy process, but the financial benefits of entering new markets or expanding to a new location are often well worth the initial cost. Thankfully, many of the expenses associated with moving your business can also be initially written off, significantly easing the burden of a big move.
Deducting a move is fairly simple for a business: the cost of moving any existing equipment or business infrastructure can be deducted, as can some of the costs of finding and securing a new office. For individuals, however, it’s not so simple. Employees who are not active military personnel can no longer deduct moving expenses, though some states still allow moving deductions on state taxes.
- Home Offices
In order to save money on operating costs or to accommodate the lifestyles of their employees, more and more businesses are adopting work-from-home policies. In addition to lowering expenses like office rent or heating, home offices can also be deducted come tax season.
While there are more complex calculations for individuals with larger or more complex home offices, most people will stick with the simple deduction: $5 per square foot, up to 300 square feet. Those opting for the more complex calculations should take note to document any repairs, utilities, or other expenses their home office incurs in order to deduct those properly.
While some of these tax benefits might seem small, the money saved from them can make a big difference down the line. By taking the time to deduct the expenses listed here, you can save money better spent on growing your business for the future.