10 Important Tax Numbers Every Business Owner Should Know to Save Big on Their Taxes This Year

1. Standard Deduction: As a business owner, you can claim a standard deduction of up to $25,100 for the 2021 tax year. This can help reduce your taxable income and save you money on your taxes.
2. Self-Employment Tax: If you are self-employed, you are responsible for paying the self-employment tax, which is 15.3% of your net self-employment income. You can deduct half of this amount on your tax return.
3. Qualified Business Income Deduction: This deduction allows eligible business owners to deduct up to 20% of their qualified business income from their taxable income.
4. Mileage Deduction: If you use your vehicle for business purposes, you can deduct the mileage expenses. For 2021, the standard mileage rate is 56 cents per mile.
5. Home Office Deduction: If you have a home office that you use exclusively for your business, you can deduct the related expenses such as rent, utilities, and maintenance.
6. Retirement Plan Contributions: Business owners can make contributions to tax-deferred retirement plans such as 401(k)s, IRAs, and SEP-IRAs. These contributions can be deducted from your taxable income.
7. Section 179 Deduction: This deduction allows you to deduct the full cost of qualified equipment and software purchases in the year they are purchased rather than depreciating them over time.
8. Depreciation: Business owners can also deduct a portion of the cost of their assets over time through depreciation. The IRS has set specific depreciation schedules for different types of assets.
9. Estimated Taxes: Business owners are required to pay estimated taxes quarterly throughout the year. If you don’t pay enough in estimated taxes, you may face penalties and interest.
10. State and Local Taxes: It’s important to keep in mind state and local taxes, which can vary greatly depending on where you live and operate your business. Make sure you understand the tax laws in your state and locality to take full advantage of any tax breaks or deductions.

Standard Deduction

The standard deduction is a specific dollar amount that taxpayers can deduct from their income before calculating their taxable income. It is a way to reduce your taxable income and ultimately reduce the amount of taxes you owe. The standard deduction is available to all taxpayers, regardless of whether they have itemized deductions or not. The standard deduction amount varies based on your filing status, age, and other factors. For the tax year 2021, the standard deduction amounts are:

• $25,100 for married filing jointly
• $12,550 for single filers
• $18,800 for heads of household
• $12,550 for married filing separately

Keep in mind that if you have deductible expenses that exceed the standard deduction amount, it may be more beneficial to itemize your deductions instead. You should consult with a tax professional to determine the best option for your specific situation.

Self-Employment Tax

Self-employment tax is a tax that is imposed on individuals who work for themselves and are not classified as employees of a company. It is the equivalent of the Social Security and Medicare taxes that employers withhold from their employee’s paychecks. The self-employment tax rate for 2021 is 15.3% of your net self-employment income, which includes both your net business income and any other self-employment income you may have.

However, you can deduct half of the self-employment tax on your tax return as an adjustment to income, which can help reduce your overall tax liability. It’s important to note that self-employed individuals are responsible for paying their own Social Security and Medicare taxes, as well as income taxes on their business income.

If you are self-employed, you must file a Schedule SE (Form 1040) to calculate the self-employment tax you owe. You may also need to make quarterly estimated tax payments throughout the year to avoid penalties for underpayment of taxes.

Qualified Business Income Deduction

The Qualified Business Income (QBI) deduction is a tax deduction that was introduced as part of the Tax Cuts and Jobs Act of 2017. It allows eligible business owners to deduct up to 20% of their qualified business income from their taxable income, subject to certain limitations and exclusions.

To qualify for the QBI deduction, you must have income from a pass-through entity, which includes sole proprietorships, partnerships, LLCs, and S corporations. The QBI deduction is available to both itemizers and non-itemizers, but it is subject to income limitations and phase-out thresholds based on your taxable income.

The deduction is generally calculated as 20% of your qualified business income, but certain limitations and exclusions apply. For example, the QBI deduction is not available for income earned from certain types of businesses, such as specified service businesses like law firms, medical practices, and accounting firms, if your taxable income exceeds certain thresholds.

It’s important to consult with a tax professional to determine if you qualify for the QBI deduction and how much you can deduct based on your specific circumstances.

Mileage Deduction

The mileage deduction is a tax deduction that allows taxpayers to deduct certain vehicle expenses related to business use. If you use your vehicle for business purposes, you can deduct the mileage expenses on your tax return.

For the tax year 2021, the standard mileage rate for business use of a vehicle is 56 cents per mile. This includes expenses such as gas, oil changes, maintenance, repairs, and depreciation of the vehicle.

To qualify for the mileage deduction, you must keep detailed records of your business mileage, including the date, purpose, starting and ending odometer readings, and the total number of miles driven for business purposes.

You can choose to use the standard mileage rate or actual expenses to calculate your deduction. However, if you choose to use actual expenses, you must keep detailed records of all vehicle-related expenses and the percentage of the expenses that were for business purposes.

It’s important to note that the mileage deduction is only available for business-related travel. Personal use of your vehicle is not deductible, and commuting between your home and workplace is generally not considered a deductible business expense.

State and Local Taxes

State and local taxes (SALT) are taxes that are imposed by state and local governments on income, property, sales, and other transactions. These taxes are deductible on federal income tax returns, subject to certain limitations.

For the tax year 2021, the state and local tax deduction is limited to a total of $10,000 for individuals and married couples filing jointly. This includes a combination of state and local income, sales, and property taxes. Taxpayers who itemize their deductions can deduct up to $10,000 in SALT taxes on their federal income tax return.

Keep in mind that if you are subject to the alternative minimum tax (AMT), the SALT deduction may be limited or eliminated, depending on your income and deductions.

It’s important to consult with a tax professional to determine how the SALT deduction applies to your specific situation, as the rules can be complex and vary based on your income, deductions, and state of residence.