5 Tax Deductions for Your Tech or Start-Up Company

The number one goal for businesses is to make money. You and your employees work hard throughout the year to increase revenue, cut costs, and improve efficiency to make your business more attractive to investors, shareholders, strategic partners, and employees. As CPAs and consultants, we understand that every dollar counts. With tax season upon us, now is the time to sort through your business expenses to make the most of the deductions available to you.  Reducing the impact of taxes on your net income will help you keep more of your hard-earned money and give you an opportunity to invest additional resources into your company. Following are 5 tax deductions to consider for your technology or start-up company this tax season.

1. Deduction for Start-Up and Organizational Costs

If you started a business in 2015, you can deduct some of your start-up and organizational costs. Qualified start-up costs are costs incurred to create a trade or business up until the day before the trade or business begins. Some examples of these costs are advertisements for opening the business, salaries and wages for training employees, and market opportunity potential surveys. Similarly, organizational costs (incorporation costs, legal services, and cost of organizational meetings, etc.) can be immediately expensed. Currently, you can expense up to $5,000 of your start-up costs and $5,000 of your organizational costs. If your start-up and/or organizational costs exceed $50,000, then the amount available for immediate deduction will be limited.

2. Section 179 Deduction for Immediate Expensing of Certain Capital Costs

Did you purchase new equipment for your company in 2015?  If “yes”, you can deduct some of these costs immediately, versus depreciating them over an extended period of time. For 2015, up to $500,000 of the equipment placed in service for that tax year can be expensed immediately. Any amount over $2,000,000 placed into service in 2015 is subject to a limitation.

In late 2015, Congress passed the Protecting American from Tax Hikes Act of 2015, which made permanent many tax deductions and credits previously set to expire. The Section 179 deduction is now a permanent addition to the internal revenue code and will increase each year with inflation.

3. Meals and Entertainment Deduction

Do you eat out a lot or host entertainment events for business purposes? If so, keep track of these expenses and deduct them at the end of the year. It’s important to remember, however, that only 50% of these expenses are deductible for tax purposes. If you wish to claim these deductions, track your business meals and entertainment expenses and make note of the purpose of entertainment events.

4. Home Office Expense

If you work out of your home, you can deduct $5/foot for the area of your home that is regularly and exclusively used for business!  Or, you can deduct a portion of your actual expenses, such as mortgage interest, home security system expenses, real estate taxes, repairs and maintenance based upon the percentage of total square footage used for business.    For example, if 20% of your home is used for an office, then you can deduct 20% of your actual home expenses, including depreciation of your home, and everything listed above.

5. Automobile Expense Deduction

You undoubtedly used a vehicle to conduct business matters in 2015. Fortunately, you can deduct 57.5 cents/mile in 2015, as long as you maintain a mileage log book.  You can also write off the pro-rata finance charges of a new or used vehicle.  For example, if you drove 20,000 miles in 2015 and 10,000 were for business, you can deduct 50% of your interest.  It’s important to remember that mileage from your home to the office cannot be written off.  Only the mileage from your office to other places of business can be written off.  However, if you work from a home office, you can deduct the mileage from your home to any other place of business.

If you used your vehicle more than 50% for business in 2015, you have the option of depreciating your vehicle and deducting your actual expenses versus taking the mileage deduction.  Contact us to determine which strategy is best for you.