Starting a business can be extremely expensive. Not only do you have to sign and pay a commercial lease, but you also have to pay for equipment, employees, electricity, and other costs of operation. That’s why many people say, “you have to spend money to make money.“ There’s another big expense that new business owners don’t always calculate, however, and that’s taxes. Although it’s a big expense, there are tax strategies that you can use.
Tax Strategies For New Businesses
- Use startup costs as a deduction – The IRA allows you to deduct up to $5,000 of your initial startup costs in your first year of business. This will reduce your taxable income, which includes both income tax and self-employment tax. Since startup costs are more expensive due to the necessity to purchase supplies and equipment, this tax break can be very useful.
- Invest in a qualified opportunity zone – Qualified opportunity zones are located in economically-distressed areas so that they can initiate economic growth. The advantage of these investments is that they offer many opportunity zone tax benefits. Some of the opportunity zone tax benefits include temporary deferral of taxes on previously earned capital gains, as well as permanent exclusion of taxable income on new gains.
- Consider special depreciation rules – In general, when you make large purchases on items that you’re going to use for more than one year, you usually can’t deduct the entire cost that year; you must take a portion of the cost on your tax return each year. If you want to deduct a larger amount in the first year, however, you can use your special depreciation allowance. This allows you to take 50% of the cost as a dedication in the first year.
If you’re interested in investing in a qualified opportunity zone, you should hire an opportunity zone attorney. The opportunity zone attorney will guarantee that you comply with all of the rules so that you can receive all of the opportunity zone tax benefits.