Many business owners don’t take full advantage of available tax deductions because they’re not aware of all the deductions that are available to them.
The best way to make sure you’re taking advantage of all the tax deductions you’re entitled to is to work with a qualified tax professional who can help you identify all the deductions you qualify for.
The words “small-business tax deductions” are few and far between for small business owners. Most business owners, however, are unaware of all the tax deductions that are available to them as small businesses — People who aren’t claiming deductions because they don’t realize that they’re available, or because they simply aren’t taking the time to keep thorough records, often deny themselves some eligible tax write-offs as self employed business owners.
A tax deduction is a reduction in taxable income. It’s basically a way of reducing the amount of income that’s subject to taxation.
For example, if you have a taxable income of $50,000 and you claim a $2,000 tax deduction, your taxable income will be reduced to $48,000.
Importance of bookkeeping for proper tax deduction
Bookkeeping is important for tax purposes because it helps to ensure that you are calculating your taxes correctly. It can be used to record business expenses, track mileage, and more.
You can write down each purchase as you make it, as well as the date, amount, and what the purchase was for. This information will come in handy when you file your taxes.
Taxes are based on your income, and if you don’t keep accurate records of your income and expenses, you may end up paying more taxes than you owe.
Additionally, good bookkeeping can help you uncover potential deductions that you may be eligible for.
Thus, bookkeeping is not only important for ensuring that you pay the correct amount of taxes, but also for minimizing your tax bill.
21 Small Business Tax deductions Checklist
Employee gifts
Small business tax deductions can be tricky, but one common deduction is for employee gifts. According to IRS Pub.463, employee gifts are 100% deductible up to $25 per year, per employee.
So if you have a team of 10 employees, you could potentially deduct up to $250 in employee gifts! Just be sure to keep good records and receipts so that you can effectively document your expenses come tax time.
Software subscription
Are you a small business owner looking for tax deductions? If so, you may be wondering if you can deduct your software subscription costs.
The answer is that it depends on the type of software subscription you have. If your subscription is for business-related software (such as QuickBooks), then you can deduct the costs as a business expense. Personal use subscriptions are not eligible for tax deductions.
Startup and organizational costs
Many small businesses owners are under the impression that startup and organizational costs are tax deductible. However, according to the Internal Revenue Service (IRS), these expenses are actually classified as capital expenses.
Capital expenses are defined as ” expenditures that acquire or upgrade physical assets and increase their useful life.” This would include things like buying new equipment or renovating your office space. These costs can be deducted over a period of time through what is called depreciation.
Because startup costs are considered a capital expenditure by the IRS, they are considered an investment in your company (the money hasn’t actually left the company but transformed into assets).
Deductions for capital expenses typically occur gradually over the course of several years and not allowed for immediate deduction by IRS. This way businesses can accurately assess profitability year over year. for more on this, you can check IRS Publication 535.
Business property rent
Businesses can deduct the rent they pay on business property from their taxable income. This includes the rent on office space, storefronts, and other properties used for business purposes.
To qualify for this deduction, the property must be used exclusively for business purposes. If you use a portion of your home for business activities, you can only deduct the rent on that portion of the home.
For example, if you use a room in your home as an office, you can deduct the rent on that room only. You cannot deduct the rent on your living room or kitchen.
To take this deduction, you will need to file Form 4562 with your tax return. This form is used to report depreciation and other information about your business property.
Insurance
Another potential deduction is for Insurance. There are a few different types of insurance that could potentially be deducted: property & casualty, health, and life insurance.
Property & casualty insurance covers damages to your business property or injuries suffered by employees on the job, while health insurance covers medical expenses for employees.
Life insurance is typically used to help keep the business running in the event of the death of a key employee.
The amount that you can deduct will depend on the type of insurance and how much coverage you have. For property & casualty and health insurance, you can deduct the premiums that you paid during the year.
Utilities
You can deduct 100% of your water, electricity, waste, telephone, and Internet bills. This can add up to a significant amount of money if you run a small business out of your home.
Home office: If you have a dedicated home office space, you can deduct a portion of your rent or mortgage interest, property taxes, insurance, and utilities. This deduction is calculated by figuring out the percentage of your home that is used for business purposes.
Vehicle Expenses
As a small business owner, you may be wondering if you can deduct your vehicle expenses on your taxes.
The answer is yes! You can deduct vehicle expenses for any car, truck, van, or motorcycle that you use solely for business purposes. This includes the cost of fuel, maintenance, and repairs.
To deduct vehicle expenses, you will need to keep detailed records of all your mileage and expenses.
The best way to do this is to create a logbook for your vehicle that tracks all mileage and expenses.
Keep track of all receipts for fuel, repairs, and maintenance and always make note of the odometer reading when you start and end each trip. When it comes time to file your taxes, simply total up all your expenses and multiply by the percentage of business use.
Employee benefits programs
If you offer benefits like health insurance, dental coverage, or a retirement savings plan, you may be able to deduct some of the costs on your taxes. This can be a big help in reducing your overall tax bill. Talk to your accountant or tax advisor to see if this deduction applies to you and how much you can deduct.
Office furniture
One deduction that you may not have thought of, but which can be quite valuable, is for office furniture. Of course, the exact deductibility of any given item will depend on its purpose and how it’s used in your business. But in general, office furniture can be deducted as a business expense.
So if you’re about to go out and purchase some new office furniture for your small business, keep in mind that it could help lower your taxes come April.
Rent and depreciation on equipment and machinery
One common deduction is the rent and depreciation deduction on equipment and machinery. This deduction allows businesses to write off the cost of rent and depreciation on any property used in the course of their business. This can include office space, computers, tools, and other equipment.
To qualify for this deduction, the property must be used for business purposes more than 50% of the time. Additionally, businesses can only deduct a certain amount each year for depreciation expenses. Be sure to talk to your accountant to find out if you’re eligible for this deduction and learn more about how it works.
Taxes
You may deduct all of the taxes you pay to operate your firm. Sales, use, and property taxes are just a few examples of indirect taxation. Indirect taxes include federal, state, and local income, real estate ,Employee taxes, such as the employer’s share of FICA, FUTA, and state unemployment contributions are all fully deductible.
Legal and professional fees
Legal and professional fees related to running your business are also tax deductible. If you need to hire a legal or accounting professional for your business, you can deduct 100% of their fees from your income taxes.
Interest
Small businesses can deduct the interest they pay on loans used to finance their businesses. This deduction can be taken whether the loan is from a bank or from a friend or relative.
In order to qualify for the deduction, the loan must have been taken out specifically for business purposes. If you use the loan for personal reasons as well as business reasons, you can only deduct the interest that corresponds to the amount of money that was used for business purposes.
If you are self-employed, you can also deduct your own mortgage interest and property taxes on your home office. To qualify, your office must be used exclusively for business purposes and meet certain size requirements.
Advertising and marketing
Small businesses can deduct the full amount of their advertising and marketing expenses. This includes things like business cards, website design and maintenance, and any other costs related to promoting your business.
Keep in mind that these deductions only apply to legitimate advertising and marketing expenses. So don’t try to claim the cost of your new suit as a deduction just because you wore it to a job interview. Stick to things that are directly related to promoting your business. And make sure you keep good records of all your expenses, so you can show them to an accountant if necessary.
Contracted labor
This means that you can deduct the cost of hiring someone to do work for your business. For example, if you hire a web developer to create a website for you, the cost of this contract can be deducted from your taxes.
There are a few things to keep in mind when taking this deduction. First, the contractor must be licensed and qualified to do the job they were hired to do. Second, the amount you spend on contracted labor must be considered reasonable in comparison to what it would have cost you to do the job yourself. Finally, only expenses that are directly related to the contracted work can be deducted. So if you hire someone to paint the outside of your store, for example, only the cost of materials and labor related to painting the store can be deducted.
Business entertainment
Business entertainment can include costs such as taking clients out to dinner or tickets to a sporting event.
However, it’s important to note that most meal costs are only deductible up to 50%. So, if you’re going to deduct entertainment expenses, be sure to keep good records and receipts.
Travel expenses
Small businesses often have a lot of travel expenses, and fortunately, these expense can be deductible. In order to deduct travel expenses, the IRS requires that the travel must be “ordinary and necessary” for your business.
This means that the travel must be related to your business activities and not personal or vacation activities.
For example, if you’re a salesperson who travels to meet with clients, those travel expenses would be deductible.
Inventory
The cost of the goods you sell may be eligible for tax deductions. This can be a significant deduction, especially if you have a large inventory.
Office supplies
You can also deduct the cost of office supplies and equipment that you use for your business. This includes things like computers, printers, and furniture. If you buy new furniture for your office, you can even deduct the sales tax on these purchases.
Bad debt
A bad debt is a business expense that was previously reported as income but is not expected to be collected. A bad debt can be created when a customer or client does not pay for services or goods received.
The IRS allows businesses to deduct the cost of bad debts from their taxable income. This deduction can be taken whether the debt is written off on the company’s books or not. To qualify for this deduction, the debt must have been created in the normal course of business and not as a result of personal expenses.
There are two ways to claim a bad debt deduction: using the actual loss or using the allowance method. The actual loss method involves deducting the amount of money that was originally claimed as income but was never collected. The allowance method involves a percentage-based deduction based on average sales.
Employee salaries
You can deduct employee salaries from your taxable income. However, there are some limitations to how much you can deduct. For example, if you have a high salary employees, the IRS may limit the amount of their salary that you can deduct.
In general, though, small businesses can deduct employee salaries as an expense on their taxes. This can be a great way to reduce your taxable income and save money on your taxes!
This article is for educational reasons only and does not constitute legal, business, or tax advice. With respect to issues mentioned in this post, each consumer should contact his or her own attorney, business counselor, or tax professional. Businessdailies.com will assumes no liability for actions taken as a result of this information.
