By Brittany Sabalza
THE TECHNOLOGY INDUSTRY IS CONSTANTLY growing and evolving, offering unique opportunities to start a tech business. Whether you perform data analytics, build computers, design software programs or work in tax technology, tech skills are in demand. As a result Indiana tech startups, techprenuers and tech companies are thriving and growing fast. It’s more likely that a techie try to keep up with all things tech but probably not all things tax. Even if you’re thinking of getting started or already running one, below are some things a techie should know about taxes and their business.
The Jump Off! Business start-up and organizational costs, licenses and permits
When starting a business there’s so much to do and so much red tape to get through. Business start-up and organizational costs are generally tax deductible for the tax year paid. Start-up costs include any amounts paid or incurred in connection with starting your business or investigating the start-up or acquisition of existing business. Organizational costs include the costs of creating a corporation or partnership. You can elect to deduct up to $5,000 of business startup costs and $5,000 of organizational costs up to $50,000. The cost of business licenses, zoning, sign permits and other federal, state and local licenses and permits are also deductible.
Knowledge is Power: Work-related education counts
As you master your profession, grow your business and expand your current skillset, you will find that education is key. The need to educate yourself and your staff is critical to evolve with day-to-day practices and stay up on the latest industry trends. Any smart business owner takes continuing education very seriously. Why? Because knowledge is power but in this case, if you meet the education requirements, it’s tax deductible too.
Research and development: Make the world a better place Starting or running a tech company often requires a fair share of research and development (R&D). And the R&D tax credit shouldn’t be overlooked. Techies are often developing services and products with new technology or working to improve the old. Testing a software’s unit integration, analyzing data for improvements or evaluating program performance are an example of qualifying activities. The cost related to R&D such as salaries, payments, product prototypes and patents for your product, along with any rented equipment, materials and supplies needed are qualifying cost for the credit. Research is valuable and is how we start to develop anything and everything but the expense can be pretty hefty. So hefty that the IRS created the R&D Credit and the Indiana Department of Revenue created Indiana’s Research Expense Credit as a tax incentive to encourage innovative business owners in their research. As a result of the 2017 Tax Cuts and Jobs Act, businesses are still able to claim the IRS R&D credit for the tax year paid but after Dec. 31, 2021 these expenses will be deducted over a period of five years.
Location! Location! Location! Office expenses
You’re running your business from somewhere. Regardless of whether you work from home or in a brick and mortar office, expenses such as rent or mortgage, utilities, repairs and décor can be tax deductible. If you work from home regularly, in a workspace exclusively dedicated to your business, home office expenses are something that you’ll want to know more about. In a brick and mortar location, you can deduct the expenses based entirely on your business unlike home offices that can deduct based on the percent of expenses proportionate to business use. Also keep track of any other office-related expenses as they may likely be deductible as well.
Hear Ye! Hear Ye! Advertising, marketing and promotion
Getting the word out about your products and services is how you get clients and start making money. Business cards, digital marketing, flyers, direct mail, posters, websites, social media marketing or events are just a few of a million ways to promote your business. Luckily, if you have any cost directly associated to marketing, advertising and promotion they are generally deductible.
Auto and mileage deductions
As a business owner, you make the moves to make things happen. Unfortunately, all the movement can wear down your car. Often driving to the store for materials and supplies, to events and meetings put a business owner’s vehicle to the test. It’s important to keep up a log of auto expenses. Expenses can include repairs, registrations, gas, tolls even oil changes, routine maintenance and more. The trips can add up, so keep track of your mileage too. If your driving is business related, your auto expenses can be deducted on your taxes.
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IRS Publication 583: Starting a Business and Keeping Records is a great way to familiarize yourself with your business’ tax obligations and can be found at IRS.gov. The Indiana DOR offers various tax for Hoosier business owners. For more information on state tax credits such as the Indiana Research Expense Credit, Hoosier Business Investment Credit, Indiana Net Operating Loss Deduction or the Coal Gasification Technology Investment Credit visit IN.gov/dor.
Brittany Sabalza is director of Continuing Education and tax columnist at Pro Tax Solutions, Indianapolis.