A tax deduction, or tax write off, is a business expense that can be subtracted from your taxable income, decreasing the amount of money you owe. Tax deductions for small businesses are important because they ultimately reduce your tax liability and lower your tax bill. This will help your business save money in many areas.
There are many different types of deductions that self-employed owners can claim on their taxable income. Let’s look at 10 of the best tax deductions for small businesses that you may not have known.
1. Utilities
Water, electricity, trash, and phone bills are all utilities for tax deductions. Any utilities used for your office space are tax deductibles that you can claim. If you work from home, a portion of the bills—including mortgage or rent—can be claimed for your business. Be sure to claim tax deductions for home improvements if the repair is helping you meet your business needs.
2. Business Meals
Do you travel for your business? You may be able to deduct some of these expenses, including business meals. If you and your team go to a restaurant or take clients out for drinks, half of that cost can be a tax deduction. Be sure to keep the receipts. Meals deductible for tax purposes must be for business occasions and there must be documentation. If the meal is for an office party, it can be 100% claimed. If your employees work late on a project and order take-out, you can also claim this when tax season comes.
3. Office Supplies
Office supplies can produce a very high cost for your company. Printers, ink, pens, paper, notes, boxes, staples—these are all on the list of tax deductible office supplies. These little costs can turn into big deductibles that you can claim as office expenses. Furniture and equipment for offices can also add to this deduction.
4. Advertising and Marketing
For many small businesses, advertising is one of the most important pieces of a successful launch. Billboards, website design, business cards, printing costs, and ads on social media… they all cost money. They are also necessary business expenses, which means they can be part of your tax deductions.
5. Insurance
Most businesses will have many forms of business insurance that they can turn into write offs. This includes tax deductions for health insurance, property insurance, auto insurance, liability insurance, continuation insurance, etc. Workers compensation, such as salary and business-issued insurance, can also be deducted. Benefits and wages that are reasonable for your specific business can also be added.
6. Startup Costs
There are a number of expenses when it comes to starting up a business. Sometimes, scrappy entrepreneurs bootstrap their business through different sources of cash or different accounts. If you do end up using personal funds, be sure to carefully document all business expenses. Because these costs are necessary for your business, most of them can be subtracted from your taxable income.
7. Taxes
Yes, taxes can be deducted from your taxable income. Any business tax, federal, state, or local, can be used to save you money. Employer tax and real estate tax are fully deductible, as well. The property must be for business only to qualify. Keep your proof!
8. Bank Fees
Are bank fees deductible? The answer is yes! Most small businesses make separate bank accounts and credit/debit cards for their finances. Any fee that the banks charge is fully deductible. This includes transaction, interest, and transfer fees. You cannot deduct fees made in a personal bank account or on a personal credit/debit card. All the more reason to separate your finances!
9. Travel Fees
Any travel that is outside of your city/area and is necessary for your business, for more than a day, can qualify for deductible travel expenses. IRS-approved expenses include travel to your destination, gas for your car, parking fees, baggage shipping, laundry fees, and more. To receive tax deductions for travel expenses, you need to keep up with all receipts and records of the expenses (including mileage of your car) and a detailed reason for the trip. This must also include the date you left and the date you returned.
10. Legal or Professional Fees
Sometimes, it is necessary for small businesses to hire a professional outside of the company, such as a lawyer or accountant. If you find yourself hiring a consultant for your business, you can receive a tax deduction for legal or consulting fees that you paid. These fees are deductible as long as they were not used for personal reasons.
Now that you know 10 tax deductions for small businesses, you can stress the importance of keeping up with records and receipts to claim as many things as possible. Taking advantage of every little deductible will add up quickly and save you money when tax season comes around. Many accountants can also assist you when filing to make sure you are making the most of every purchase.
