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5 Valuable Tax Breaks for Small Businesses

December 05, 2022

Looking for ways to cut costs? Here are five often overlooked tax breaks for small businesses.

Is your business looking to save money and maximize credits and deductions? There are opportunities for relief, especially in light of lingering pandemic and recession concerns.

  1. Flexible Spending Arrangements (FSAs)- A Flexible Spending Account, or FSA, is one of the most requested employee benefits around - and for good reason. FSA plans allow for employees to contribute up to $2,500 (indexed for inflation) per year of pre-tax dollars to an account that may be spent on qualifying medical expenses such as deductibles, prescriptions and co-pays. Even though FSA contributions are withheld from employee paychecks over the course of the tax year, the total annual election amount is available for use on January 1st. This allows employees to essentially “borrow” against their FSA and pay it back over the course of the year. The contribution limit for FSAs is $2,850 for 2022, and increases to $3,050 for 2023.
  2. Home security system- Is your principal residence your main place of business? Many businesses have benefited from installing a home security system for the part of the home used for business. Not only can you take a first-year depreciation deduction for the cost of the system, but you will also be able to deduct ongoing maintenance and monitoring expenses. Let’s say you use 10% of the square footage of your home for your business—the deduction would be 10% of the home security system.
  3. Cafeteria for employees- Does your business provide subsidized meals to employees? In the past, employers were able to deduct 100% of the cost of these meals—under December 2017’s TCJA, employers can deduct 50% of these meals (for 2018-2025). Good news—snacks get a tax free pass!
  4. Charitable donations- Do you donate to a qualified charitable organization? Donations are tax deductible in most cases. The charitable contribution, to be deductible, must be made to a qualified charitable organization- Typically this means the inventory can be given to any 501(c)(3) organization. That means donations cannot be set up to benefit an individual.
  5. Municipal bonds or “munis”- Municipal bonds or munis are usually purchased by banks and broker-dealers who then resell these bonds to high net worth individuals and corporations. The investors then become lenders to the issuer and in turn, collect periodic payments of interest on the bonds. The principal is typically returned when either the bonds are called by the issuer or their maturity date. Because munis are virtually tax free, they are particularly attractive to high net worth investors. Unlike corporate bonds, the interest you receive from a muni is exempt from federal taxes.

Looking for additional ways to save tax? We can steer you in the right direction. Contact us.

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