As a business owner, there
are many deductions you can take to lower the amount of income on which you
will be taxed. There is one basic
rule. To be a classified and accepted expense
it must be both ordinary and necessary to make a profit. Here is proof that you need the assistance of
both an accountant and financial planner.
In addition to business
expenses, there are many investment tax deductions available to you. The most common are IRAs and 401k plans. For tax year 2016, the common deduction for
an IRA is $5,500 ($6,500 catch up provision if over Age 50). For a 401k the current deduction is $18,000
($24,000 if age 50 and older).
If you employ individuals,
there is a host of other tax deductions available for you. Business owners can adopt and contribute to what
is called a SIMPLE IRA. This year a
business owner can deduct up to $12,500 ($15,500 if over Age 50. At first glance this is about double what a
typical IRA deduction is. However, keep
in mind there are rules that one must follow if you have employees. Plus, you must file adoption papers by
October 1 to qualify for SIMPLE IRA deductions.
Another common tax
deduction for business owners is what is called a SEP-IRA. In other words, a Simplified Employer Pension
Plan. In this tax deduction, the maximum
allowable deduction is the lessor of 25% of your income or $53,000. Again with employees there are numerous rules
to keep in mind for contributions for these workers.
As you can see there are many rules and
considerations when using tax deductions. I cannot emphasize enough the need to
bring in both an accountant and financial planner to assist you. I cannot emphasize enough the need to
bring in both an accountant and financial planner to assist you.