Latest news with #deductions
Yahoo
19 hours ago
- Business
- Yahoo
Tax saving strategies for small business owners
Choosing the right business structure can significantly impact your tax liability. Small business owners can reduce taxes through deductions, credits and strategic expense timing. Proper documentation and compliance with tax laws prevent costly mistakes. Contributing to retirement plans and using healthcare tax advantages can provide long-term savings. Working with a tax professional can help maximize deductions and credits while ensuring compliance. Taxes create significant financial challenges for small business owners. Without a solid plan, tax liability can reduce profits and limit growth opportunities. A proactive approach to tax planning helps business owners claim deductions, utilize credits and implement legal strategies to lower tax burdens. Learning how to manage taxes effectively can improve cash flow and support long-term success. How a business is taxed depends on its legal structure: Sole proprietors: Report business income on their personal tax returns and pay self-employment taxes. Limited Liability Companies (LLCs): Can be taxed as sole proprietors, partnerships or corporations. S-Corporations (S-Corps): Allow business income to pass through the owners while avoiding corporate taxes. C-Corporations (C-Corps): Pay corporate income tax, but also provide opportunities for tax planning through deductions and reinvestment. Small businesses have several common tax obligations, including income tax, self-employment tax, payroll taxes and sales tax. The Tax Cuts and Jobs Act (TCJA) introduced key benefits for small businesses, including the Qualified Business Income (QBI) deduction, allowing eligible businesses to deduct up to 20% of qualified business income. Some provisions of the legislation, including the QBI deduction and lower corporate tax rates, are set to expire in 2025. Stay informed on these potential changes and adjust your tax strategy to minimize your tax burden. Reducing your tax burden requires strategic planning and smart decision-making. Use the right tax-saving strategies to reduce your tax burden, freeing up funds that you can reinvest in your business. Selecting the right legal structure impacts taxation. Sole proprietorships and LLCs often work for small businesses, but S-Corps can help reduce self-employment tax. Business owners should reassess their structure as income and liabilities grow. Common deductible expenses include rent, utilities, office supplies, marketing and employee salaries. To claim tax deductions, business owners must keep clear records and receipts. Misreporting deductions can lead to audits or penalties. Reduce taxable income by contributing to an SEP IRA, SIMPLE IRA or Solo 401(k) plan. These plans not only lower tax liability but also help build long-term financial security. Hiring a spouse or children can provide tax advantages. Wages paid to children under 18 may be exempt from payroll taxes, and employing a spouse allows for access to retirement benefits. Documentation of work performed is required for compliance. If you use part of your home exclusively for work, you may qualify for a home office deduction. The simplified method calculates deductions based on square footage, while the regular method uses actual expenses like mortgage interest and utilities. Adjust your income and expenses at the right time to reduce taxable income. Make office purchases before year-end to lower the current year's tax burden. Select cash or accrual accounting to control when income and expenses are recognized. Businesses that purchase equipment or software can deduct the full cost under Section 179 instead of depreciating it over time. Bonus depreciation also allows for significant first-year deductions on qualifying purchases. Unlike deductions, tax credits reduce tax liability dollar for dollar. Common credits include the Research and Development Credit, Work Opportunity Tax Credit and Small Employer Health Insurance Credit. Understanding which credits apply to your business can lead to significant tax savings. Small business owners can deduct the cost of health insurance premiums for themselves and employees. Health Savings Accounts (HSAs) provide another tax advantage by allowing pre-tax contributions to cover medical expenses. A tax professional can help you identify the best tax-saving strategies, stay compliant with tax laws and plan for future tax changes. Find an experienced advisor to ensure that all available deductions and credits are utilized. Take action before the year's end to reduce your tax liability. Follow the tips below to take advantage of potential tax savings. Purchase equipment early. Buy necessary equipment before December 31 to claim deductions for the current year. Review estimated tax payments. Review quarterly tax payments to ensure accuracy and avoid underpayment penalties. Maximize retirement contributions. Contribute to retirement accounts before deadlines to reduce your taxable income. Make charitable donations. Donations made by year-end can qualify for tax deductions if properly documented. Organize your financial records. Keeping receipts, invoices and financial statements up to date simplifies tax filing and reduces audit risk. Tax mistakes can be costly and may lead to penalties or missed savings. Here are some of the common tax mistakes to avoid as a small business owner. Underpaying estimated taxes. If you don't pay enough in quarterly estimated taxes, you could face IRS penalties and interest. Missing deductions and credits. Business owners often overlook valuable tax deductions and credits, leaving money on the table. Improper record-keeping. Incomplete or disorganized financial records can make tax filing difficult and increase the likelihood of an audit. Mixing business and personal expenses. Failing to separate personal and business finances can cause accounting issues and complicate deductions. Not updating tax strategies annually. Tax laws change, and failing to adjust your approach each year may result in unnecessary tax burdens. The expiration of the Tax Cuts and Jobs Act in 2025 could impact small business tax rates and deductions. Always plan for potential tax law changes and build flexibility into your tax strategy. Review tax plans annually to stay ahead of policy changes and maximize financial opportunities. Proactive tax planning can help minimize your tax liability and maximize profits. Strategies such as leveraging deductions, choosing the right structure and timing income and expenses can make a big difference. Consult with a tax professional to ensure compliance and take full advantage of available tax-saving opportunities. What tax deductions can small business owners claim? Common deductions include rent, utilities, office supplies, travel expenses, employee wages and health insurance premiums. How can I reduce my self-employment taxes? Structuring your business as an S-Corp may help reduce your self-employment tax liability. Contributing to a retirement plan can also lower taxable income. What is the Section 179 deduction? Section 179 allows businesses to deduct the full cost of qualifying equipment and software purchases rather than depreciating them over time. Sign in to access your portfolio
Forbes
3 days ago
- Business
- Forbes
6 Above-The-Line Tax Deductions For Those Who Claim Standard Deduction
When you file your taxes, one of the biggest decisions is whether you should claim the standard deduction or go through the chore of itemizing your deductions. With the standard deduction of $15,000 for individuals and $30,000 for married couples filing jointly, itemizing requires a significant sum of deductions to make it worth it. But did you know there are 'above-the-line' deductions that you can claim even if you claim the standard deduction? Many of these deductions are claimed on Schedule 1 of your Form 1040, which can be a guide to finding these above-the-line deductions. Here are a few of the more uncommon ones: If you had to withdraw money early from a certificate of deposit (CD), you likely paid a penalty depending on the terms of the CD. For many CDs, you pay the equivalent of 6-months or more of interest back to the bank if you have to access your funds early. Fortunately, this is deductible on Line 18 - Penalty on early withdrawal of savings. If you paid student loan interest, you could get a tax break on up to $2,500 of payments as long as you qualify. There are income restrictions. You do not qualify if you have income over $80,000 for single filers and $165,000 for those married filing jointly. This can be found one Line 21 - Student loan interest deduction. If you were divorced before the start of 2019, your alimony payments are deductible from your income on Schedule 1 of your Form 1040, Line 19a - Alimony paid. If your agreement was established amended in or after 2019, unfortunately it will no longer be deductible. If you are a teacher, you can deduct up to $300 in unreimbursed expenses spent in your classroom. You must have worked at least 900 hours at a qualifying elementary or secondary school. This can be found on Line 11 - Educator expenses. If you are an active-duty service member and had qualifying moving expenses that were not reimbursed, you can claim them on Line 14 - Moving expenses for members of the Armed Forces. It covers household items, housing, storage and travel but does not include meals.
Bloomberg
05-06-2025
- Business
- Bloomberg
Johnson Says He's Fighting to Keep $40,000 SALT Cap in Trump Bill
House Speaker Mike Johnson said he is fighting to maintain the new $40,000 cap on state and local deductions in the draft tax bill now before the Senate, where Republicans are seeking to enact a less generous break. 'I am certainly trying to hold to that number,' Johnson said on Bloomberg TV on Thursday. 'I hope they tolerate it.'
Yahoo
31-05-2025
- Business
- Yahoo
Marginal tax rate: What it is and how to find yours
Your marginal tax rate is the highest income tax rate you'll pay on your income. Because the U.S. has a progressive tax system, different tiers of your income are taxed at different rates. The marginal tax rate is the rate that applies to your last dollar of income. It's important to understand how the marginal tax rate — and tax brackets in general — work, because your income isn't taxed at one single rate. What's more, by claiming all applicable tax deductions you may be able to reduce your marginal tax rate. As your income increases, portions of it are taxed at higher rates. The tax rate that applies to your final dollar of income is your marginal tax rate. Because only a portion of your income is taxed at the highest rate, your effective tax rate — which takes into account that some portions of your income are taxed at lower rates — is likely lower than your marginal rate. Suppose you're a single taxpayer who earned $70,000 in 2024. While your income falls into the 22 percent tax bracket — that's your marginal tax rate — a majority of your income is actually taxed at much lower rates. Based on the 2024 tax brackets, for taxes due in 2025, this is how your income is taxed: In other words, $11,600 of your income is taxed at 10 percent, $35,550 of your income is taxed at 12 percent and the remaining $22,850 of your income is taxed at 22 percent. As the above illustration shows, you pay the lowest tax rate on a subset of your income, until you've surpassed the top end of the income range for that tax bracket. Then the next tier of your income is taxed at the next highest rate, until you've surpassed the top end of the income range for that bracket, and so on. One of the biggest misunderstandings many Americans have about income taxes is that they think falling into a particular bracket, such as the 22 percent bracket, means that all of their income is taxed at that rate. In truth, that rate only applies to a portion of your income. Here are the 2025 income tax brackets, for taxes due April 2026, or October 2026 with an extension: Tax rate Single Head of household Married filing jointly or qualifying widow Married filing separately 10% $0 to $11,925 $0 to $17,000 $0 to $23,850 $0 to $11,925 12% $11,925 to $48,475 $17,000 to $64,850 $23,850 to $96,950 $11,925 to $48,475 22% $48,475 to $103,350 $64,850 to $103,350 $96,950 to $206,700 $48,475 to $103,350 24% $103,350 to $197,300 $103,350 to $197,300 $206,700 to $394,600 $103,350 to $197,300 32% $197,300 to $250,525 $197,300 to $250,500 $394,600 to $501,050 $197,300 to $250,525 35% $250,525 to $626,350 $250,500 to $626,350 $501,050 to $751,600 $250,525 to $375,800 37% $626,350 or more $626,350 or more $751,600 or more $375,800 or more Here are the 2024 income tax brackets for taxes due April 2025 (or October 2025 with an extension): Tax rate Single Head of household Married filing jointly or qualifying widow Married filing separately 10% $0 to $11,600 $0 to $16,550 $0 to $23,200 $0 to $11,600 12% $11,600 to $47,150 $16,550 to $63,100 $23,200 to $94,300 $11,600 to $47,150 22% $47,150 to $100,525 $63,100 to $100,500 $94,300 to $201,050 $47,150 to $100,525 24% $100,525 to $191,950 $100,500 to $191,950 $201,050 to $383,900 $100,525 to $191,950 32% $191,950 to $243,725 $191,950 to $243,700 $383,900 to $487,450 $191,950 to $243,725 35% $243,725 to $609,350 $243,700 to $609,350 $487,450 to $731,200 $243,725 to $365,600 37% $609,350 or more $609,350 or more $731,200 or more $365,600 or more Need an advisor? Need expert guidance when it comes to managing your money? Bankrate's AdvisorMatch can connect you to a CFP® professional to help you achieve your financial goals. To calculate your marginal tax rate, you need to know your taxable income and relevant filing status. With this information, it's simple to determine your marginal tax rate. Refer to the tax brackets above and identify the bracket with the income range that matches your total taxable income — that's your marginal tax rate. That said, your taxable income is a bit more complex to calculate: First, add up all of your sources of income to determine your gross income. Then, subtract certain adjustments to determine your adjusted gross income (AGI). Then, determine whether you will take the standard deduction or itemize deductions. Finally, subtract your standard deduction or itemized deduction from your AGI to get your taxable income (some taxpayers may also be able to deduct the qualified business income deduction from their AGI). On Form 1040, your adjusted gross income, or AGI, is listed on line 11, and your taxable income is listed on line 15. To reduce your marginal tax rate, you must reduce your taxable income. While it may be possible for some people to defer income that they earn late in the year to the following year, most people will need to take advantage of tax deductions. By reducing your marginal tax rate, you'll reduce your total tax bill. To reduce your taxable income, consider maximizing contributions to tax-advantaged accounts and claiming all applicable deductions. The more money you contribute to tax-advantaged accounts — like a 401(k), traditional IRA, health savings account (HSA) or flexible spending account (FSA) — the more you will reduce your taxable income, while also setting yourself up financially for the future. You should also make sure you're claiming all eligible deductions, even if you take the standard deduction. There are several 'above-the-line' deductions that will reduce your gross income, even if you don't itemize, including deductions for student loan interest and educator expenses, along with certain business expenses and self-employment taxes. Maximizing your deductions could lower your marginal tax rate. Finally, you may want to carefully assess whether it makes sense to itemize deductions instead of taking the standard deduction. By itemizing, you can take advantage of even more deductions, including those for charitable contributions, mortgage interest, property taxes, state and local taxes (SALT), and qualified medical expenses. Still, for it to make sense to itemize, generally your itemized expenses need to add up to more than the standard deduction. The standard deduction is worth $15,000 for single filers and those who are married filing separately, $22,500 for head of household filers and $30,000 for married filing jointly couples for tax year 2025. Another way to trim your tax bill is by realizing losses; that is, selling investments at a loss. Not only can capital losses offset capital gains (when you sell an investment for more than you bought it), but you can also reduce some of your taxable income. You need to be mindful of how long you've owned an asset before selling — the IRS generally uses the one-year mark to differentiate between short- and long-term gains and losses. By realizing net capital losses, you can reduce your taxable income by up to $3,000 a year, which will reduce your overall tax obligations and potentially reduce your marginal tax rate. Learn more: Short-term vs. long-term capital gains: How they work For most taxpayers, your marginal tax rate will differ from your effective tax rate. Knowing the difference between your marginal tax rate and effective tax rate is important because it informs how much you owe the IRS. Your marginal tax rate is the highest rate that applies to only that portion of your income that's in the highest tax bracket, whereas your effective tax rate is your average tax rate — or the tax rate you actually pay. Consider the example above of a single taxpayer earning $70,000. While that person's marginal tax rate is 22 percent, their effective tax rate is about 15 percent. To determine your effective tax rate, simply divide your total taxes owed by your taxable income. Learn more: Marginal vs. effective tax rates: How they differ and how to calculate each rate While the federal income tax system in the U.S. is progressive, some states impose a flat tax on income. With a marginal tax rate, you pay different tax rates up to your highest rate, but with a flat tax system all of your income is taxed at the same rate. There has been a movement in recent years among states to adopt flat tax systems, though specific rates across states vary widely. The 14 states with a flat tax system in 2025 are: Arizona, Colorado, Georgia, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Michigan, Mississippi, North Carolina, Pennsylvania and Utah, according to the Tax Foundation. Another nine states don't levy an income tax at all. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Daily Mail
26-05-2025
- Business
- Daily Mail
Expert reveals the biggest mistake Aussies can't afford to make at tax time
Aussies who rush to get their tax return in early are making a huge mistake, a peak accountancy group has warned. As the end of the financial year looms, income earners can claim up to $300 worth of work-related expenses, excluding travel, without the need for receipts. Manually claiming work expenses is often time consuming and many Aussies are tempted to complete their return as soon as possible on July 1 to get a quick tax refund so there's money in the bank to pay those bills. But Jenny Wong, the tax lead with CPA Australia - representing Certified Practising Accountants - said those who rushed to fill out their tax return could be missing out on important deductions. ' Cost of living pressures could mean some people are eager to lodge their tax return as quickly as possible to access a refund, but it's important to be patient, gather your evidence and claim everything you are entitled to,' she said. 'Firing the starting pistol on your tax return too quickly means you could end up shooting yourself in the foot. Failing to claim everything you're entitled to means less cash back than you could otherwise get.' Now is the time to chase up all those receipts to save the hassle later. 'Hopefully your receipts aren't down the back of the couch, but they might be in your emails and phone apps. Or maybe the junk draw?' Ms Wong said. Travel expenses Ms Wong said those filing their tax return too early were more likely to miss out on travel expenses incurred on the job. 'Maybe you travelled more for work and were not reimbursed by your employer for meals or other travel essentials,' she said. While it's possible to make a total claim on tax if the deductions are less than $300, this shortcut doesn't cover travel allowance, meal allowances, or the use of a car. That means workers whose employer gives them a travel allowance, also known as an award transport payment, can also make a claim if travelling for work still left them out of pocket after a workplace allowance. 'Any out-of-pocket work-related expenses could be tax deductible, but you'll need evidence in case you are asked in an audit. Think about what you've had to purchase for work. Check your bank statements,' Ms Wong said. Those using their car also need to identify which travel is used for work. 'For vehicle expenses, you must be able to identify and justify the percentage that you are claiming as business use,' Ms Wong said. 'To claim accurately, you will need to use a logbook or diary to show private versus business travel.' Buying new work tools Rushing a tax return could also jeopardise the expense of work-related items. Those working from home can claim the cost of a desk or a chair worth up to $300 in one financial year. If the item is worth more than $300, the item can be claimed on tax over several years, based on how long it's likely to last for. The same $300 rules applies to buying tools needed for the job. 'Or maybe you started a new job where you had to buy tools, subscriptions, or pay for training and security clearances, for example,' Ms Wong said. Australians have until June 30 to buy any essential work items to be able to claim the deduction for the 2024-25 financial year. Working from home claim Those working from home can multiply by 70 cents the number of hours they worked from where they lived in 2024-25. This method also requires daily diary keeping. H&R Block calculated the typical Aussie working from home would claim 1,095 hours over the financial year, adding up to $767. Or they can alternatively use the actual cost method, based on add up electricity and internet bills. 'Which work-from-home expense type makes most sense for you - fixed rate or actual cost method? If you've been good at keeping records throughout the year, the actual cost method may be more beneficial,' Ms Wong said. Tell the truth Those who lied about their work expenses are more likely to face an audit from the Australian Taxation Office. 'Getting your tax return right is your responsibility,' Ms Wong said. 'This means declaring all of your income and claiming the appropriate expenses. 'Failure to properly declare your income increases your chances of being audited by the ATO.'
