Starting your own business can be a real challenge, and for small businesses, the journey towards success can be especially tough. Financial burdens are among the most significant obstacles, and with the added uncertainties of the pandemic and economic conditions, it’s even more challenging. But there’s a silver lining: tax deductions!
Many small businesses overlook them, but they can help you save on expenses, which is always a good thing. Tax deductions can make a significant difference for small business owners, especially during times of economic uncertainty. By taking advantage of these deductions, you can keep your expenses down and ultimately help your business succeed. This article will provide you with some key deductions to consider when filing your taxes.
Deduction for business meals
Did you know that business meals are deductible? Originally as part of the COVID-19 relief law to support struggling businesses, the IRS introduced a 100% deduction, but now it’s 50%. Still, that can result in significant savings for small businesses. Just make sure that the meal is with a business contact, like a customer or employee, and that the cost isn’t too extravagant.
Deductible holiday parties and gifts
Holiday parties and gifts are great ways to boost morale and show appreciation for your employees’ hard work. And for small businesses, the best part is that holiday parties are 100% deductible, and gifts under $100 are considered de minimis by the IRS and aren’t taxed. Gifts to clients and customers under $25 are also tax deductible.
Retirement plan deductions
Retirement plans are an essential part of saving for the future, and they can help lower your taxes too. There are various retirement plans available for small businesses, including Simplified Employee Pension (SEP) plans, SIMPLE IRA, one-participant 401(k), and defined benefit plans. Business owners can defer up 25% of an employee’s compensation to retirement savings through an SEP. Investing in a retirement plan not only saves money on taxes, but it also helps small businesses provide valuable benefits to their employees.
Bonus depreciation deduction
Bonus depreciation has been another valuable tax deduction to help small businesses save money, but the rules are changing. Starting in 2017, businesses could take a 100% bonus depreciation, which means they could deduct the full price of an asset in the first year.
Unfortunately, that’s no longer the case, and the deduction percentage will decrease 20% each year until the deduction is phased out entirely in 2027. Still, this means that small businesses can expect an 80% bonus depreciation deductible in 2023. This deduction has been particularly helpful for businesses investing in expensive equipment, machinery or property — so if you’re planning a big purchase, it may be better to make it sooner rather than later to maximize this deduction.
Child salary deduction
Hiring your children as employees can both be a smart way to teach them valuable skills and save money on your taxes. If your children are under 18 years old and work in your business for a reasonable wage, you can deduct their salaries from your business income as a business expense.
Small businesses need all the help they can get, so it’s important to be aware of all the available tax deductions. However, it’s always best to consult with a financial advisor or tax professional to determine which deductions are best suited for your business and to ensure that you comply with the latest IRS regulations.
By taking full advantage of these key tax deductions, small businesses can save a bit more cash in 2023 that they can set aside to help build the future of their companies.
Grant Freeman is the Chief Customer Officer at Thryv. Grant’s primary focus is ensuring Thryv operates as a customer-centric company. Grant focuses on continually improving the experience delivered across a client’s journey to create highly engaged and happy clients. @GrantRBFreeman