Taxes can seem complicated and overwhelming, especially for new small business owners. It’s possible that your concerns about how much taxes to pay will overshadow the search for any tax benefits you may be eligible for, and that’s something that you should avoid.
The costs you incur in the operation of your business can be taken off your taxes in the form of a deduction. With so many details to consider when estimating what you owe, it’s easy to miss certain deductions that could end up costing you money.
Here’s a look at two common deductions you should make sure to take.
Business Space Expenses
The physical or virtual space you use to run your business is deductible on your taxes whether you rent office space or if you have a home office you use regularly for business purposes. The utilities, equipment and technology you use for your office space can all be deducted.
Workspace that you own: you can deduct the interest on your debt and property insurance if you own your business space, as well as for any repairs or maintenance expenses you incur in that space.
Workspace that you rent: the office space or property rent for your small business is deductible. However, if you have or will receive equity in or title to the property, the rent is not deductible.
Workspace in your home office: If you have a home office you can deduct all or some of the square footage of the space you dedicate to your work area. The deduction is calculated on the size of your workspace, not on the size of your entire residence, and is limited to 300 square feet. You can also deduct the costs of utilities, insurance, and even mortgage interest, on a pro-rata basis.
Qualified Business Income (QBI) Deduction
As a small business owner, you may be able to deduct up to 20% of your business income. For example, if you made $150,000 last year, taking a 20% QBI deduction would lower your taxable income for that year to $120,000.
QBI applies to business entities including sole proprietors, partnerships, and S-corporations. If you own a specialized services trade or business (SSTB), there is a limit for the income that can be used in a QBI deduction.
SSTBs include but are not limited to: health services, law practices, accounting firms, consulting, athletics, financial services, investing and investment management, and performing arts.
For SSTB owners with total income that exceeds $164,900 for single filers, or $329,800 for joint filers, the deduction will begin to phase out for 2021, the deduction begins to phase out.
For the 2022 tax year, these amounts will increase to $170,050 for single and $340,100 for joint filers. Your tax advisor will be able to help you navigate these details.
Are You Taking Advantage of All Your Tax Breaks?
Owning and running a small business can be challenging without having to think about taxes. Are you taking advantage of all of your tax breaks? Find out by consulting with our tax professionals at Scharf Pera & Co., PLLC today.