First Year Tax Deductions

First Year Tax Deductions

As business owners ourselves, we know how important it is to stay on top of taxes and to make the process as easy as possible to file accurately and on time. At Schaffer Law Firm, we complete a third quarter fiscal review with our accounts each year to understand where we stand with our taxes. Most importantly, this helps us learn if there’s anything to make up for, while providing at least six months’ time to do so before taxes are due in April.

The process can be even stickier to navigate as a new business, which is why we’ve partnered with our colleagues at Accountfully to help guide you through some of the most common first-year tax deductions you should consider well before tax season approaches.

The first year of operating a business is a lot of work—a lot of painstaking, never-ending, boring, when-is-this-going-to-end work. We’ve been there. We get it. It’s rough. But as bookkeepers and accountants, we’re here to tell you that there is a tax-related silver lining for you to keep on your first-year radar. As a new business owner, you are eligible to take advantage of certain tax credits and deductions that may not be available to you as your business grows and matures. To help you make the best of your first 365 days, we’ve comprised a list of three important tax deductions to be aware of when it comes time to file your taxes.

    1. Startup Costs: Good news! You will be able to deduct up to $5,000 of start-up costs in the first year your business begins operations. This encompasses a variety of different services and expenses including the following:
      • Hiring a contractor to perform a survey of potential markets, customers, labor supply, etc.
      • The advertising efforts and promotion for the opening of your business.
      • The salaries for employees who are getting trained to perform their job–this includes their instructors as well.
      • Travel and other necessary expenditures that are focused on securing new business relationships like prospective distributors, suppliers, or customers.
      • Fees associated with consultants and executives that you’ve enlisted to help with professional services

 

    1. Organizational Costs: It costs money to form a business, but it’s something you can deduct when it comes time to file taxes. Costs pertaining to the creation of a partnership or corporation are deductible under the same rules for start-up costs.
      • Partnership Deductions: These qualifying expenses will include such things as legal fees, management fees, consulting fees, accounting fees and others that go into setting up the partnership itself.
      • Corporation Deductions: These qualifying expenses include incorporation fees, accounting fees, and legal fees for preparing corporate documents.

 

    1. Research and Development Costs: This is our favorite deduction to mention because it’s the most overlooked. The Research and Development Tax Credit results in an immediate cash flow benefit to a company since it reduces current and/or future years’ federal tax liability or payroll tax liability. The credit provides a dollar-for-dollar offset against taxes owed, which is even more beneficial than a deduction.
      • Developing and testing out new products and formulas.
      • Certification testing to meet product or industry standards and specifications.
      • Environmental testing to achieve industry and regulatory requirements.
      • Developing new technology and new software.
      • Prototyping new or improved software functionalities
      • Improving or refining internal processes and procedures

 

The best way to simplify taxes for your business is to be proactive. Perform quarterly reviews to make sure you’re taking advantage of every possible credit for which you are eligible. Don’t leave money on the table—work with a team that can help you make sense of your liabilities and advise you on when and how to make strategic purchases and hires that will be in your favor come tax time.

About Accountfully: Accountfully is an outsourced bookkeeping and accounting firm located in Nashville, TN. They work with modern business owners across the country as their bookkeepers, accountants, CFOs, controllers, and CPAs. Fluent in the inner workings of their businesses, they are also a trusted advisor—a resource when it comes time to make big decisions—especially taxes. If you are interested in learning more about Accountfully and the ways in which they can help with taxes, please reach out to Rebekah at (hello@accountfully.com).