Summary: In today’s podcast, Julio Gonzalez from Engineered Tax Services discusses some tips and tricks regarding tax credits that all small and large businesses should know. No matter your business size, it is crucial to spend time looking into the proper tax benefits for your industry.
Have a Small Business Tax Plan
For small business owners, it can be easy to not spend too much time focussing on tax benefits. Many small business owners on average pay the IRS more than they need to due to not claiming the proper tax write-offs. Small business owners should look to professionals that specialize in small business tax accounting instead of just utilizing your CPA that does your business taxes. Instead of viewing these professionals as a cost, view them as a smart investment. A tax accountant is different than the accountant who does your taxes. If the tax accountant has proper industry knowledge and experience, a great tax accountant can end up saving you a large chunk of money.
Real Estate Is The Top Tax Write Off for Small Business Owners
Small business tax questions can arise when businesses are unsure about how they can reduce taxes. Business real estate is a timeless tax-saving option with a plethora of benefits for small business owners that tend to go unnoticed by entrepreneurs.
So what are the benefits of buying property and a building as a small business? When you purchase real estate for business purposes, you can claim the whole purchase on your taxes. Furthermore, when you rent it out to tenants, you essentially get to pay your mortgage off with that money through rent.
This option is timeless as your real estate will be an appreciating asset, gaining value over time. If you keep up with the property needs, you can increase the value more that way. For example, if you choose to install renewable energy sources into your property, you can claim that as a tax write-off.
To break it down further, here is a quick recap of the various benefits to buying real estate a business owner;
- Mortgage reduction
- Appreciation of your property
- Tax deductions
- Healthy cash flow
Buying real estate can be a very wise investment if you are in it for the long haul and even if you are not ready to buy yet, knowing about real estate as a tax deduction is a wonderful knowledge to have.
Research & Development Tax Credits (Cost Segregation Studies)
A cost segregation study is essentially an engineering report that tells the real estate investor how much of the property is nonstructural vs. the bricks and mortars. These studies aim to identify various estate costs that will depreciate over 5-15 etc. years.
With this knowledge, as a small business over, you can immediately write off 50% of those depreciation expenses.
This can end up helping you pay back yourself for lost money or capital you needed to initially purchase the property. Many tax credits such as this go unrecognized by many small business owners because they don’t take the time to acquire the proper tax accountant.
The wonderful thing about the IRS is that they allow you to catch up to previous depreciation in your current tax returns, so you can go all the way back for years and amend all your returns. The key is that a quality tax account is different than an accountant that does your taxes.
Outside of real estate as a tax write-off, general research and development, can also be a big tax deduction and many businesses are unaware of its definition. Some examples of this may be;
- Testing to help the environment
- Research for developing new or improved formulas and products
- Patent Development
- Technology Development or testing
- New software improvements or developments
Employee Retention Tax Credits
Many small business owners may feel as though they just are not in the position quite yet to buy a property. If you are one of the small business owners in that position, you can still qualify for smaller tax credits that will benefit you.
Employee retention tax credit encourages employers to keep their employees. During the Covid-19 Pandemic, the refundable tax credits can be applied to 50% of up to $10,000 in wages paid if your business was impacted by Covid-19.
In 2021, if your business experienced more than a 20% decline compared to 2019 for the same quarterly period, you can qualify for retention tax credits.
Employment Tax Credits
Another way that small businesses can benefit from their tax credits is by following the IRS WOTC (Work Opportunity Tax Credit) rules. This is a tax credit that can benefit business owners to hire employees from various groups that have faced “significant barriers to employment” according to the IRS.
A complete list of groups can be found here. However, some may include but are not limited to;1) Qualified IV-A recipient; 2) Qualified Veteran; 3) Qualified Ex-Felon; 4) Designated Community Resident; 5) Vocational Rehabilitation Referral; 6) Summer Youth Employee; 7) Supplemental Nutrition Assistance Program (SNAP “food stamps”) recipient; 8) Supplemental Security Income (SSI) recipient; 9) Long-term Family Assistance recipient, and 10) Qualified Long-term Unemployment recipient.
Minority-Owned Business Benefits
If you are a minority-owned business owner, you may qualify as being a certified minority-owned business. You can find out if you qualify as a minority-owned business owner here. In the U.S you may qualify if you are Hispanic/Latino Americans, Black/African Americans, Asian Americans, Arab Americans/Middle Eastern Americans, Native Americans/Alaska Natives, and Native Hawaiians/Pacific Islanders.
While there are no direct tax benefits from the Federal Government for being qualified, you can receive benefits for doing business in low-income areas or doing business with other MBE’s (Minority-Owned Enterprises).
General Deductions & Tax Tips for Small Businesses
Aside from some of the more complex tax credits, as a small business owner, it is important to know about some of the most general tax credits and deductions you may qualify for. As a small business owner, it can be helpful to have an expert help you when identifying which are most suitable for you.
- Office expenses
- Healthcare expenses
- Phone bills
- Business meals
- Business travel expenses
- Work car expenses
- Work gas mileage
- Office supplies
- Professional service fees
- Charity contributions
- Startup expenses
- Purchasing materials from minority-owned businesses
Although some of these are generally known by small businesses, you may find yourself discovering new write-offs every year for your business when you constantly keep up with tax laws (which are constantly chaining). Keeping a small business tax preparation checklist throughout the year can help you stay quarterly and annually up to date.
Benefits of Hiring a Tax Accountant
As your small business continues to grow and expand, it can get easy to lose track of your books. Especially if you are not a numbers person who is organized, you can save yourself money by investing in an expert
Should you hire just any tax accountant? While you can do that, hiring an expert tax accountant can help pay you more benefits by knowing an expert within your industry.
Finding someone who knows the ins and outs of your specific small business or industry will ensure the maximum and most effective tax credits and deductions.
About the Guest Julio Gonzalez, from Engineered Tax Services
Julio Gonzalez, who embodies living the American dream. Julio is CEO of Engineered Tax Services. (ETS) – the country’s largest specialty tax engineering firm specializing in federal tax incentives, IRS compliance and standards, and tax issues for all business sizes from small businesses to Fortune 500 firms. Julio is a self-made Billionaire. He grew up very poor, a Cuban immigrant, one of 8 children. In elementary school, he became involved in wrestling and pursued that (like all things he does) with a passion. Ended up getting a full college scholarship and a place in the collegiate wrestling hall of fame. With a degree in accounting, he went to work in a Top 5 firm but found a niche in tax credits and started his own firm. He is also a philanthropist sitting on the board of many charities including Turning Point USA and the Heritage Foundation.
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