Almost every expenditure you make in your business can be written off as a deduction or tax credit, but many business owners still fail to maximize their write-offs. The result can be paying more in taxes than the law requires.
Here are five tax deductions and credits you may be eligible for on your 2015 return.
1. Tax credit for paying employees’ health costs
Businesses with fewer than 50 full-time equivalent employees (FTEs) are not required by the Affordable Care Act to provide health coverage to employees, and even those with 50 to 99 employees are not penalized for failing to offer coverage in 2015. Nevertheless, many small businesses do pay some or all of the cost of coverage for employees, and this can trigger tax breaks. At a minimum, you can deduct the premiums. But even better, if you paid at least half of the premiums for employees (not counting owners or family members) in 2015, you may be eligible for a 50 percent tax credit. To qualify, you must have fewer than 25 FTEs with an average annual payroll of less than $52,000 per FTE. Check the instructions to Form 8941 for eligibility rules.
Premiums for self-employed or a more-than-2 percent S corporation owner are not part of the credit and are not a business deduction. They are fully deductible, however, on the owner’s personal tax return as an adjustment to gross income (no itemizing required).
2. Home office deductions
The Small Business Administration reported that 52 percent of all businesses in the U.S. are run from home. Still, many owners may be afraid to take a home office deduction, thinking it can be an audit red flag. This may have been true in the past, but there’s no evidence to show that it continues to be so. In fact, there’s now a simplified home office deduction of $5 per square foot up to a maximum deduction of $1,500 each year (assuming you meet the requirements for claiming a home office deduction).
3. Write off equipment purchases
Did you buy tablets for your staff? A new cement mixer? Office furniture? Businesses that placed machinery or equipment in service in 2015 may have a number of ways to deduct the cost:
- De minimis safe harbor deduction of up to $500 per item or invoice for items that aren’t capitalized, which means they’re not included in the balance sheet. This requires a taxpayer’s statement attached to the return; there’s no special IRS form.
- First-year expensing (also called the Section 179 deduction) up to $500,000 (assuming total purchases don’t exceed $2 million for the year). This break is helpful only if you’re profitable.
- Bonus depreciation of up to 50 percent of cost. This applies only to new (not pre-owned) property. It can be combined with first-year expensing.
- Regular depreciation. This allowance for a percentage of the cost (determined by the type of property involved) can be beneficial this year and for some years to come.
Note that these tax deductions for equipment purchases apply even if you financed the purchases. For example, if in 2015 you charged the cost of a microwave for your office’s break room to your business credit card and began to use the microwave before the end of the year, you can write off the cost on your 2015 return even though you pay the credit card bill in 2016.
4. Credits for hiring certain employees
If you added to your staff in 2015, you may be eligible for a tax credit for doing so. There are several employment-related credits to explore:
- Work opportunity credit. This relates to hiring workers from certain targeted groups (e.g., ex-felons, family assistance recipients, certain veterans). The amount of the credit depends on the group to which the new employee belongs. You can claim a credit for each eligible employee; there’s no limit. Check the instructions to Form 5884.
- Empowerment zone employment credit. If your business is located in an area designated as an empowerment zone, hiring a worker who lives in the zone can entitle you to a credit. Check the instructions to Form 8844.
- Indian employment credit. If your business is on an American Indian reservation, a new employee can earn you a tax credit. Check instructions to Form 8845.
5. Check for tax break carryovers
You may not have been able to fully utilize a deduction or credit in a prior year because of tax law limitations tied to your income. Some breaks have carryovers that can allow you to use the unused write-off at a future time. The carryover period may be time sensitive (e.g., only a set number of years) or indefinite (until you use them up). Here are some carryovers to consider:
- Capital losses. If you are a sole proprietor, partner, member of an LLC, or S corporation shareholder, the business’s capital losses are subject to capital loss limits on your personal return. Use the Capital Loss Carryover Worksheet in the instructions to Schedule D to figure capital loss carryovers from 2014 to 2015.
- Charitable contributions. Look over your records for charitable contributions last year.
- General business credit. This isn’t a separate credit but rather an overall limitation on the total of various business credits. Check last year’s Form 3800 for any carryover.
- Home office deduction. Check last year’s Form 8829 for any carryover.
- Passive activity losses. Check last year’s Form 8582 for any carryover.
You work too hard to waste deductions and credits by failing to understand whether you’re eligible for them. Consult with a tax advisor to make sure you’re taking every write-off you’re entitled to.
The information contained in this article is for generalized informational and educational purposes only and is not designed to substitute for, or replace, a professional opinion about any particular business or situation or judgment about the risks or appropriateness of any financial or business strategy or approach for any specific business or situation. THIS ARTICLE IS NOT A SUBSTITUTE FOR PROFESSIONAL ADVICE. The views and opinions expressed in authored articles on OPEN Forum represent the opinion of their author and do not necessarily represent the views, opinions and/or judgments of American Express Company or any of its affiliates, subsidiaries or divisions (including, without limitation, American Express OPEN). American Express makes no representation as to, and is not responsible for, the accuracy, timeliness, completeness or reliability of any opinion, advice or statement made in this article.
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