December 07, 2017 | Posted in:

3 Tax Breaks for Small Businesses You Might Not Have Thought Of

Alloy Silverstein’s Tax Tip of the Week

Some tax planning moves for small businesses are more common, like acquiring property that qualifies for the generous Section 179 expensing allowance. But other strategies may fly under the radar.


Here are three little-known ways for small business owners to save:


1) Building improvements

Generally, amounts paid to improve tangible property must be capitalized and depreciated over time, but recent regulations provide a unique tax break. Under a safe harbor election, a qualified small business may deduct certain building costs above the maximum Section 179 allowance. The election is limited to $2,500 per invoice or item or $5,000 if you have an applicable financial statement (AFA) audited by a CPA. The IRS also looks favorably on business building improvements that improve energy efficiency.


2) Employee bonuses

Normally, employee bonuses are deducted in the year they are paid. However, for an accrual-basis company, bonuses are currently deductible if fixed by year-end and paid within 2.5 months of the close of the tax year. Thus, your small business may deduct year-end bonuses on its 2017 return if they are paid by March 15, 2018 (other than bonuses paid to majority shareholders of a C corporation, certain owners of an S corporation or a personal service corporation). Bonuses can be a strategic tool in your end-of-year tax planning, so make sure you are in touch with your CPA.


3) Start-up expenses

The tax law allows a small-business owner to claim a first-year deduction of up to $5,000 for qualified start-up costs. Any remainder must be deducted over 180 months. However, the $5,000 write-off is phased out on a dollar-for-dollar basis for start-up costs exceeding $50,000.

Typical start-up expenses include:

  • An analysis of potential markets, products, logistics, and costs
  • Advertisements for the opening of the business
  • Wages paid to train employees
  • Travel for securing prospective distributors, suppliers, customers or clients
  • Fees paid to outside consultants for professional services

Expenses not applicable include taxes, interest, assets, and research costs.

There is one catch: You must be open for business before the end of the year if you want to claim this for 2017. So make sure that the public has access to your goods or services before January 1st. Since startups often experience a loss in their first few years, an accounting partner to your startup can help you decide if taking advantage of the $5,000 deduction or amortizing qualified costs over the 180 months is more beneficial for your situation.


Contact your Alloy Silverstein accountant and advisor and we can help you determine what types of small business tax breaks might be applicable to your specific situation.

© MC 2017 | “Tax Tips” are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.


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