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business tax credits and deductions

All About Business Tax Credits and Tax Deductions

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Are you looking to reduce your taxable income? Then you must leverage on your business tax credits and deductions. However, this is easier said than done.

In the U.S., some businesses fall behind their tax filings for various reasons. And they eventually pay huge penalties depending on how late they file them. So, as a savvy entrepreneur, you should file and pay your tax returns punctually.

Remember every business is liable for taxes for one key reason — taxes spur economic growth and development. It is through tax revenue that governments fund vital public investments and social for the larger society’s benefit.

But to maximize your tax savings, you should understand the differences between business tax credits and tax deductions.

Comparing Business Tax Credits and Tax Deductions

Business tax credits and tax deductions are the most rewarding elements of preparing tax returns. Both help to alleviate your business’ tax bill.  

So, when looking to offset your firm’s qualifying expenses, you can claim a tax credit or tax reduction, or both.

But how do business tax credits differ from tax deductions?

Business Tax Credit

A business tax credit is a dollar-for-dollar reduction of the outstanding income tax.

A business tax credit directly lowers your tax liability by its stated amount. So, if your tax bill amounts to $25,000, a $2,000 tax credit would reduce it to $23,000.

Below are the three most common types of business tax credits:

Small Employer Health Insurance Tax Credit

Also known as the Small Business Health Care Tax Credit, the Small Employer Health Insurance Tax Credit applies to businesses that successfully enroll in the SHOP (Small Business Health Options Program).

To qualify for the SHOP, you must have less than 25 full-time employees receiving an average annual salary of up to $50,000. Additionally, you must provide no less than 50% of your full-time workers’ premium and offer coverage to your entire full-time workforce.

The Small Employer Health Insurance Tax Credit is refundable and counteracts up to 50% of your premium costs.

Disabled Access Credit

Have you ever spent on offering disabled individuals pertinent accommodations in your business? Well, you might qualify for the Disabled Access Credit.

Better still, if you meet the IRS’s definition of small businesses, you can also claim the Disabled Access Credit. But you must have other qualifying expenses like the removal of barriers to ease accessibility.

As a small business owner, you can claim up a maximum Disabled Access Credit of $5,000. This credit is worth half of your total eligible access expenses.

FMLA Tax Credit

In case you willingly offer your workforce paid family and medical leaves, you might qualify for the nonrefundable FMLA Tax Credit.  

You can claim at least 12.5% of FMLA Tax Credit if you foot 50% of your workers’ wages. If you bear 100% of their wages, you qualify for up to 25% of the FMLA Tax Credit.

Other common types of business tax credits include the Work Opportunity Tax Credit, New Employment Credit, Federal Empowerment Zone Tax Credit, and Research & Development Tax Credits.

Business Tax Deduction

A business tax deduction alleviates your total taxable income.

For instance, if your taxable income is $100,000, a $1,000 business tax deduction would reduce it to $99,000. But it will not reduce your tax bill by $1,000.

So, while a business tax credit reduces your tax bill directly, a business tax deduction reduces the amount upon which your tax bill is based.

Here are the most common business tax deductions:

Charitable Contribution Deduction

If you donate your business time, property, or funds to 501©(3) status organizations, consider claiming the Small Business Charitable Donations Deduction.

To claim the charitable contribution deductions, you must be eligible to donate to a qualifying nonprofit.

Business Mileage Deduction

Do you have to drive for business? Consider claiming the Business Mileage Deduction for the miles covered on business-related errands.

You can use the actual expense method or the standard mileage rate when claiming the Business Mileage Deduction.

Home Office Deduction

If you use a part of your home for business, you deserve the Home Office Tax Deduction.

To attain the Home Office Tax Deduction eligibility, you must regularly use a dedicated part of your home for business purposes. And your home must the main workplace.

Using the IRS’s simplified method, you can qualify for up to $1,500 in Home Office Deductions.

Which is better between a business tax credit and a tax deduction?

Alleviating your tax liability does not always entail an either-or decision. Luckily, you can claim both business tax credits and deductions to optimize your tax savings.

But here is the rub — you cannot claim both for the same expenses. Also, tax credits generally offer more significant tax relief than tax deductions.

Note: If you must decide between a tax credit and a tax deduction, first compute both to determine which gives you the highest tax savings.

Wouldn’t you like to relieve your business of tax liabilities?

Contact us today and our tax credit experts will take you through the baby steps towards attaining business tax compliance.

tax credits real estate

4 Ways Your Real Estate Company Can Save on Taxes

By | Real Estate, Tax Credits | No Comments

For independent real estate agents, it can be difficult to find the time to manage your finances. For many real estate agents who run their own agency, taking care of your clients, and developing new leads, can eat into your time. You may find tax preparation moving down your priority list. However, you do not want to make the mistake of being surprised when tax season rolls around.

Taking the time to look at your finances now can help you to make sure that everything is in order and that you are taking advantage of all possible tax deductions available to you when April arrives. Finding the right tax deductions can help save your business thousands of dollars each year. To help get you started, here is a look at just a few ways that your real estate company can save money on taxes this year:

Commissions Paid

There are several tax deductions that you can take as a real estate agent. An important one to keep in mind is that you can deduct commissions that you have paid to employees or business partners. As a business owner, paying commissions is a cost of doing business, and the IRS generally considers commissions paid to be a fully deductible business expense.

This is an important deduction to remember to take as it can represent significant money saved or a lot of money left on the table if you do not take advantage of this deduction. When you go to fill out your tax paperwork, deductions for commissions paid would be placed on your Schedule C tax form on the 10th expense line.  

Marketing Expenses

As a small business owner and sole proprietor, it is likely that you invest a significant amount of money in marketing and advertising your business. Even with the advent of cost-effective marketing methods such as creating social media accounts for your business, it is likely that you still spend a large amount of money marketing your business and listings by purchasing signs, flyers, and advertisements in local papers. Many real estate agents also outsource their social media and content marketing to experts, which is an added expense.

Fortunately, marketing and advertising costs can also be deducted as a business expense. Even money spent developing your website and running digital ads on social media and Google can be deducted as marketing expenses. These deductions can be made on Line 8 of your Schedule C tax form.  

Fees, Licenses, and Memberships

A common expense for independent real estate agents is annual fees for things such as license renewals, professional association memberships, and multiple listing service (MLS) dues. Fortunately, many of these fees can be deducted as a cost of doing business. Money paid towards premiums for general business insurance and errors and omissions insurance are also both fully deductible business expenses as well.

It is important to keep track of everything that you spend maintaining your business and professional memberships. This will help ensure that you take advantage of all tax deductions available to you.  

Deduct Travel Expenses

Of course, unless you are lucky enough to have only local clients within a few miles of your home or office, it is likely that you do a lot of driving, and the miles can add up fast. This can mean spending more money fueling and maintaining your car than the average driver. Fortunately, you can deduct $0.575 per mile you drive for your business in 2020. You may also be able to deduct maintenance and repair costs for your vehicle as well. 

Keeping track of all the tax deductions and credits available to you as an independent real estate agent can quickly become overwhelming, and it is easy to forget a credit or deduction. Contact us to learn how Incentax’s streamlined process can help you to identify and maximize all the tax credits available to your real estate company. This can help to significantly reduce your tax liability.