If you own a business, your gains are subject to taxes by the government. Business owners often lose a big part of their gains to income taxes.
Therefore, it is essential for business owners to understand how to identify tax deductions relevant to their field of work. Higher tax deductions for small businesses also equate to a faster tax filing process.
This information is crucial for small business owners operating in a volatile market, as higher income tax bills lead to lower capital gains.
Let us go ahead and identify some of the most significant tax write-offs and understand how these write-offs can help business owners lower their income taxes.
You can include several expenses in tax deductions to cut your income tax bills. However, these tax deductions need to be somehow linked to a business to avail deductions on income tax. Some of the top income tax deductions include:
- Business Meals
- Business Insurance
- Work-related travel expenses
- Expenses related to Home office
- Car/Vehicle usage costs
- Supplies for your office
- Salaries and Benefits
- Business expenses
- Costs related to child and dependent adult care
- Medical expenses
- Real Estate and Mortgage deductions
- Other investments that can be included in the list of deductibles
1. Business Meals
You can show bills of food purchases and avail a 50% deduction of the cost of food and drink if the meal was somehow related to your business. To establish this relationship, you need to document some of the details.
These details include the date and place of the meal, in addition to its cost. It also consists of the other person involved in the meal with your business.
2. Business Insurance
You can write off business insurance costs from your tax returns, which can help you significantly reduce the small business tax. If you have an office at your home, you can deduct the insurance cost incurred by the renter from your tax returns.
3. Work-related travel expenses
If you are traveling outside your tax home, all payments you make on a business trip can be included in tax deductions for Small Businesses. The expenses included in this category are as minute as laundry bills to massive expenditures like airfare.
To ensure that you can write off travel expenditure, you are suggested to spend more than one business day on tour and rest or sleep at least once during the entire span of the trip.
4. Expenses related to Home office
If you run your business from your home, you can deduct an amount from your tax returns. The amount that can be written off is calculated at a rate of $5 per square feet of your home office. This can be included in tax deductions for Small Businesses only if your home office spans less than 300 square feet.
5. Car/Vehicle usage costs
If you are driving a car for conducting processes related to your business, you can claim the costs associated with the maintenance and operation of the vehicle. However, in case you use a car to conduct business, as well as for personal usage, you can only claim the cost of miles driven for the company.
6. Supplies for your office
You can also deduct the amount spent on buying supplies for your office from your tax returns. The stores that you can list include pens, printers, paper, and other stationery items.
However, the cost of these items can only be tax deductions for Small Businesses in the year they were purchased. Shipping and postage costs related to your business are also eligible for inclusion in tax deductions. You can also add phone and internet bills to the list of tax deductions for Small Businesses.
7. Salaries and Benefits
If you are a small business owner and you employ several employees, you can deduct their wages, benefits availed by them, and vacation costs from your tax returns. However, it is to be ensured by the business owner that the employee that is being paid a salary is not a partner or sole proprietor in the business.
If the wages of employees that qualify are reasonable, you can include them in tax deductions for Small Businesses. You can head over to ProfitBooks and avail services to keep track of these expenses, thus allowing you to have more deductions in your income tax.
8. Business expenses
As a small business owner, you can deduct the cost of advertisements and promotion of your business through print and digital media from your taxable income. Corporate and cultural events that you host for your clients and employees also require funding.
The funding of these accounts can also be added to the tax deductions for Small Businesses that you can avail of. However, you must establish the relationship between these expenses and your business.
Failing this, one might not be able to claim tax deductions, consequently leading to higher income taxes. You can efficiently work on decreasing your business expenses by following these tips.
9. Costs related to child and dependent adult care
If you have kids 12 years old or less, you can write off the expenses related to them as deductibles in your tax returns. In addition to this, if you have adults depending upon you that are physically or mentally unable to care for themselves, you can also include their expenses to tax deductions for Small Businesses.
10. Medical expenses
If you have health insurance, you can claim its premiums, in addition to the costs related to medical care under this category. These expenses include fees of Doctors, costs of prescription drugs, and other charges related to medical services.
Medical expenses make up a significant portion of the costs for many individuals. Thus, you must document your medical expenses precisely to avail tax deductions for Small Businesses.
11. Real Estate and Mortgage deductions
One can claim up to $10,000 as property taxes, including the taxes paid to the state or local authorities for real estate in the tax deductions for Small Businesses.
Interest payments towards mortgage loans can also be included in these tax deductions if you use the loan to construct, repair or buy a house to operate your business out of.
12. Other investments that can be included in the list of deductibles
Investments made in educational courses, seminars, and subscriptions to publications that can help you enhance your business can be included in tax deductions.
Many other expenses can also be written off in your tax returns.
Small businesses’ tax deductions reduce the total taxable income you acquire throughout the year. This, in turn, leads to a reduced amount of taxes to be paid to the government. It is suggested that you take professional help from an accountant to figure out your tax returns.
An accountant knows relevant tax deductions for small businesses to help small business owners and entrepreneurs lower their income taxes. However, all of the tax deductions do not allow 100% deductions.
Expenses like furniture bought entirely for official use, phone bills, and health insurance premiums for self-employed personnel are allowed 100% tax deductions.
It gets hard to keep track of all the expenses related to a business. Every little transaction needs to be accounted for to file taxes accurately. Manual record-keeping of these expenses leaves space for error, and some costs might be overlooked.
ProfitBooks is good at keeping track of all the ins and outs of a business account, therefore making the process of filing taxes more manageable for you.
If you opt for the ProfitBooks remote bookkeeping service, our experts can help you effortlessly avail the relevant tax deductions for Small Businesses.
Find out how ProfitBooks can help you with your accounting needs! Create your account for free today.