Owning a business is not just about making profits but saving money as well. One common way to save money is by taking advantage of small business tax deductions. It's typical for business owners to spend time each January reviewing invoices and receipts in preparation for the filing of taxes. However, doing this can actually lead you to spend money rather than save it.
The best thing to do instead of sending money to the government is to channel it back into your business by taking advantage of all the small business taxes that are available and appropriate for your business. Here are the most common small business deductions you should take come tax season:
1. Vehicle Expenses Tax Deduction
If you use your car, truck, or van for business or for personal reasons, make sure you keep records during the year. You may be able to deduct your actual expenses when it’s time to pay taxes or use the 54.5 cents per mile IRS standard mileage rate by the IRS. You must track the mileage and run some numbers in whatever reasons you use your car for. It’s better to use the standard mileage rate when filing taxes if you drive a lot of miles each year. If your vehicle is old however and it requires maintenance or isn’t very good at keeping fuel, using your actual expenses vs. the IRS mileage rate is recommended as you might be able to get a larger deduction.
2. Home Office Tax Deduction
For self-employed individuals, devoting a portion or the whole part of their house is pretty standard. That portion of the house must only be dedicated to being your office which means you can’t have your children play in the space while you work or make home cooked meals while working. To calculate the size of your deduction depends on the amount of your home that’s used as an office. Here’s an example:
Total square footage of your home / divided square footage used as an office = the percentage of direct and indirect expenses (rent, utilities, insurance, repairs, etc.) that can be deducted.
3. Professional Services Tax Deduction
You may not have in-house accountants or attorneys as a small business owner but doesn’t mean you can’t deduct their services when filing your tax return. You can deduct the fees you pay for every service you use as long as those fees are reasonable and necessary. You’ll be able to check if it’s appropriate by looking at the IRS publication or consulting with a tax professional.
4. Salaries and Wages Tax Deduction
It’s highly possible that you won’t be able to deduct draws and income that you take from your business if you’re a sole proprietor or you own an LLC company but what you can do is deduct the salaries and wages you paid for your part-time and full-time employees. You may also deduct other payments including bonuses, meals, lodging, per diem, allowances, and some employer-paid taxes. In most cases, you may even deduct the payroll software and systems cost.
5. Office Supplies and Expenses Tax Deduction
A small business owner doesn’t have to have a traditional office just to be able to deduct office supplies and expenses in their tax returns. As long as they are used within the year they’re purchased, you can still deduct conventional business supplies and office expenses so make sure your receipts are properly filed. If your business also spends money on postage, shipping, and delivery services, you may deduct their costs as well.
6. Client and Employee Entertainment Tax Deduction
If you spent money to entertain or meet your clients to discuss business, you can take small business deductions from them. Although you won’t be able to deduct the full amount of your entertainment expenses, every bit of savings count. You can usually deduct up to 50% of the cost your spent on client meals and entertainment as long as one employee was present and the meal wasn’t lavish. As for the cost of recreational and social events or activities held for employees, you can deduct up to 100% of the cost as well as deduct meals prepared to your team in a company cafeteria or you if you and the same went out for dinner.
7. Freelance/Independent Contractor Tax Deduction
Do you bring in independent contractors to keep your checkout lines moving during busy days? Or do you hire them to create new marketing materials for your shop? Make sure to deduct your costs by issuing Form 1099-MISC to anyone who earned $600 or more from you during the tax year.
8. Furniture and Equipment Tax Deduction
If your small business has spent money to buy furniture and equipment, you’ll be able to take a deduction and it’s your choice how you want to do it. You may deduct the entire cost for the tax year in which it was purchased or you may depreciate the purchases over a seven-year period. One thing to remember is to follow the rules and make the right choice between depreciation and full deduction because the IRS has a specific regulation that governs your choices.
There are plenty of tax deductions available for small business owners if you make your own research or if you want it fast and accurate, try consulting a tax professional who knows the appropriate tax deductions available for you.
