5 Ways to Reduce Your Business Taxes in 2016
Are you looking for ways to save on business taxes this year? Here are five ways to reduce business taxes in 2016.
1. Reimburse Eligible Expenses
Employees and business owners should make sure they are reimbursed for all out of pocket expenses prior to year-end. Reimbursement of expenses to an individual under an accountable plan results in a tax deduction for the business and the reimbursement is non-taxable to the employee. The most common types of reimbursements include mileage, cell phone, meals and entertainment and home office expenses. Under an accountable plan, the individual must have adequate documentation supporting the reimbursement, such as a mileage log or receipts. Any amounts reimbursed or paid under a non-accountable plan could be subject to income taxes on the individual’s tax return.
2. Section 179 Expense
Eligible businesses that acquire fixed assets may immediately write off up to $500,000 of the cost of assets purchased and placed in service before year end. The write-off cannot create a net loss for tax purposes and the business cannot have placed more than $2,000,000 of eligible Section 179 assets in service. Any amount over $2,000,000 reduces the eligible deduction dollar for dollar and the amount is completely phased out at $2,500,000. These amounts are indexed for inflation.
3. Bonus Depreciation
Businesses that acquire new (not used) fixed assets may take bonus depreciation of 50% for the first year such assets are placed in service. This means half of the cost of the new assets may be depreciated in the year placed in service and the remainder is depreciated over the useful lives of the assets. This deduction is scheduled to be phased out in the future.
4. Using Credit Cards
Using credit cards instead of cash to make major purchases such as business equipment can produce significant bonuses. Consider using one or two bonus paying credit cards strictly for business. Note that it will be necessary to break down the items charged to the card into expense categories for record keeping. So, you may want to limit your use to major purchases and retain all credit card bills and receipts.
5. Consider Starting a Retirement Plan
Consider starting a retirement plan such as: SIMPLE IRA, SEP IRA or 401(k) plan. Contributions made by the Company for its owners and employees to a retirement plan are deductible by the Company.
For more information, visit our business tax deduction page.
