15 Common Tax Deductions for Small Business Owners
Running a small business is hard. On one hand, you're trying to work on your products and services, managing your team's workflow, dealing with customers, and on the other hand, you have to take care of the most dreaded job – taxes. But don't worry, being a small business owner has its own perks. The IRS offers plenty of tax deductions for small business owners, so make sure you take full benefit of these and prevent a heavy cash outflow on taxes!
1. Deduction on Total Income
Small business owners can get a deduction of up to 20% off their total business income. It's applicable for sole proprietorship, partnership, and LLCs. However, your business must meet the conditions of eligibility. To know whether you qualify for this deduction, reach out to a tax expert.
2. Home Office
If you're operating your small business from your home, you're in for a lot of tax deductions. When a part of your own household is being used for business purposes, you can write off expenses such as mortgage interest, insurance premium, depreciation, and so on.
3. Rent Paid
Any space that you have taken as rent to run your business, is eligible for a write-off. Be it an office space or a shop, if it's meant for business use, you can claim a deduction for it without hesitation.
4. Office Expenses
Office supplies are a big expense for any small business. Whether you're buying computers, printers, pens, pencils, or anything related to your office, everything is tax-deductible. Here you can also count the expenses paid towards software.
5. Utility Bills
Expenses on electricity, water, heating, etc. are part of your utility bills, and these are all necessary expenses to run your small business. Those bills are worth scanning and saving, and deduct them while filing taxes.
6. Vehicle Expenses
Do you have a car you use for business purposes? Good news, you can get a deduction on your vehicle expenses. You could either go with IRS' standard deduction rate, or keep a tab of actual records, like expenses on gas, repairs, insurance, etc., depreciation, and car registration fees. The second method is a little more complicated, so we would recommend taking help from a tax expert to help you maximize your deductions.
7. Travel Expenses
Traveling for business purposes is quite common, and the good thing is, that you can deduct your travel expenses. It applies to all the expenses incurred by you or your employees – the only condition is that the expense has to be strictly for the requirement of your business. You have to preserve all the receipts and proofs to be eligible for this write-off.
8. Meal Expenses
Running a business means scheduling meetings, and of course, having meals! You can claim a deduction on up to 50% of the total expenses of your food and drink purchases. To be eligible for this write-off, you'll have to produce some details regarding the meal, such as your business relationship with the people who were present in the meeting, the date and place of the meal, and the total amount spent on the meal, etc. So, don't forget to preserve your receipts.
9. Payments to Employees
Payments and benefits you offer to your small business employees can be written off. It includes salaries, bonuses, commissions, contributions to retirement funds, education, and so on. Besides employees, if you work with freelancers, the payments made to them are also tax-deductible.
10. Taxes Paid
The money you spend on paying local taxes, real estate taxes, personal property taxes, and sales taxes is eligible for a write-off of up to $10,000. Besides these, if you're paying occupational taxes or excise taxes, you could write them off too.
11. Interest on Business Debt
Debts can be harmful to your small business because you'll have to spend an unreasonable amount of money on interest. We highly encourage you to run your business without taking any debts if possible. But in case you already have some existing loans, and you're paying interest on it, you can deduct the amount while filing taxes.
12. Repair & Maintenance Cost
Every office requires some form of maintenance from time to time. Be it repairing cracks in the wall or leakages in the washroom, these repair charges are eligible for a deduction. Besides repairing, you can also write off the amount you spend on maintaining the property, e.g., painting walls.
13. Phone & Internet Charges
In today's age, phone and the internet are two of the most essential elements of running a business. As a small business owner, you can write off these expenses. If your phone and internet are being used for both personal and work-related stuff, then you can claim a partial deduction.
14. Fees for Professional Services
Running a business requires you to take help from professionals from different spheres. You might need legal assistance from a lawyer or tax consultation from a tax expert from time to time. All of these expenses are eligible for a tax deduction.
15. Charitable Contributions
If your small business made any charitable contributions to qualified organizations during the financial year, they are eligible for a tax deduction. If your company is set up as a corporation, you can write off the amount while filing corporate taxes. Otherwise, if your small business is registered as an LLC, sole proprietorship, or partnership, then you can file the deductions as a part of your personal tax.
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