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Make Your Money Work for You: Tax Deductions & Incentives

MAKE YOUR MONEY WORK FOR YOU: TAX DEDUCTIONS & INCENTIVES
 July 6, 2022 |  Business Tips, Franchise |  small business, entrepreneur, business growth

To be successful in business it has always been said that you need to spend money to make money. In truth, to be profitable in the business world, it’s about making the money you acquire work for you. To make your money work for you, it’s important to understand the nature of tax deductions and incentives, as this is key to getting from where you are to where you want to be financially. At this point, it’s essential to note that these suggestions may be different from state to state. To get a complete scope of the tax deduction process, please consult your local financial adviser or tax preparer.

Business Expenses
When you’re just starting out in this business, it’s easy to become overwhelmed by the pressure to succeed. You may be questioning how you are going to pay for all the newly associated costs of running a business, but if you’re savvy, you know how to structure your money to be both effective and efficient.

As a business owner, you can write off most expenses if you’re careful in doing so (i.e., keeping records of business expenses through immaculate management of receipts and proper tax forms). The first tax deduction you should consider making are the rental costs for your commercial space and the land upon which it’s located. According to the Internal Revenue Service (IRS), you can deduct your rental expenses on your taxes if you are doing so for a property you do not own. However, if you are the owner of the property, you will not meet the requirement for the tax deduction.

If you operate your business from your home, there are also tax breaks to consider. Some of the expenses that are available for deductions include: repairs needed to your home that will directly improve your business, the interest accumulated from your mortgage, depreciation, and utilities. To qualify for these incentives, you must use your home as your main place of business where you interact with clients. The same rules apply for independent structures used for business that are still on your property.

Business expense tax incentives also include the cost of equipment needed to perform your duties and the price of company vehicles. If you use your car for both company and personal purposes, you can still deduct the amount spent for oil changes, gasoline, insurance, and tires, just to name a few. To do this, you must separate your business mileage from your personal errands, or you can use the standard mileage deduction of 58.5 cents per mile (this rate is subject to change on a yearly basis) to equate the correct business use deduction amount. As a self-employed inspector, you may also qualify to withhold state property taxes on your multi-use car, loan interest for your vehicle, and the cost of parking. Additionally, if you’re a home inspector working from home you can deduct the mileage from your home to the location of your inspection because there is no standardized daily route taken.

As previously mentioned, the cost of tools may be another amount that you can subtract from taxation. However, this comes with its own set of rules as well. To write off equipment and tools you must have an itemized invoice for each item. Also, the tools and equipment must be valued at a minimum of $200 or have an expected usage of one year or less (a recurring expense).

Capital Assets
A well-kept secret is the deduction of capital assets from taxation. Capital assets include marketing and advertising for your business, travel expenses, and employee training and wages. Regarding employee wages, these may be deducted if the wages paid out are reasonable in nature and are for services performed under an agreement. Employee bonuses and commissions also fall into this category. Other forms of payment or gestures of goodwill are additional items that can be written off from your taxes. This includes gifts given to employees (i.e., holiday gifts and rewards), which fall under the non-wage business expense category.

The price incurred for marketing and advertising is also an expense that may be written off as a capital asset. For example, if you sign up for NPI’s Marketing Tech Suite, you would be able to write the amount used to pay this fee off from your taxes, as it’s an expense that directly aids your business. The one rule is that the marketing and advertising budget cannot be used as a part of any political campaign. Political contributions fall under lobbying expenses, which are not deductible.

Travel costs and associated expenses can also be deducted from your taxes. This means that the cost of traveling to this year’s Annual Conference would be a tax write-off in addition to the cost of lodging and car rental (assuming that Omaha is not your tax home). The cost of food can also be deducted. Typically, meals can only be deducted at 50 percent, but for the income tax years of 2021 and 2022, the full price of each meal can be written off.

De Minimis Safe Harbor for Tangible Property
For most other expenses, the rule of de minimis safe harbor for tangible property can be utilized on your tax return, meaning that the payments made to obtain physical property can be written off. This may include mundane items such as office supplies all the way up to office furniture. For each item there must be an itemized statement provided. Secondly, each invoice cannot exceed the amount of $5,000.

Disclaimer: This publication should not be considered legal, business, tax, or financial advice. This publication is designed to provide information about the subject matter covered. It is provided with the understanding that the author is not a tax or legal professional, and that neither the author, nor National Property Inspections, Inc., has been engaged by the reader to render legal, tax, or other professional service. If tax advice or other expert assistance is required by the reader, the services of a competent professional should be sought.

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