Best Deductions For a Small Business for Tax Season
Tax season can be one of the most stressful times of the year for business owners. However, it's necessary if you want to avoid audits or getting penalized by the IRS.
But, tax season is also beneficial for business owners since it can help you deduct certain expenses, which means that you can reduce your overall tax burden.
To make sure that you don't leave any money on the table, here are the best deductions for small businesses to write-off this upcoming tax season.
Home OfficeIf you're a small business owner or freelancer who uses part of your home regularly and exclusively for work you can deduct this expense.
AutoIf you use a car or vehicle for your business, or if your business owns its own vehicle, then you can deduct some of the costs of maintaining that vehicle. Like deducting your home office, there are two different methods of deducting this expense.
The first method is the actual expense method where you must keep track of and deduct all of your actual business-related expenses such as gas, oil changes, and repairs The other method is the standard mileage rate method where you deduct a certain amount for each mile driven, along with business-related tolls and parking fees.
For 2017, the IRS mileage rate is 53.5 cents per mile for business miles driven.
Travel If you have to travel for work you can deduct everything from the expenses associated with operating your vehicle, hotel rooms, public transportation, car rentals, plane tickets, and meals - even those meals used to wine and dine clients.
On top of those obvious deductions overlooked deductions like phone calls, dry cleaning, shipping baggage and materials, and bringing along employees or business associates are also fair game.
Current and Capitalized Under the Section 179 Deduction, the IRS allows you to deduct the cost of actually getting your business started, which are known as capital expenses. These include expenditures like property, equipment, vehicles, furniture, computers, and software that equal up to $500,000. There's also a 50 percent bonus depreciation.
Once you open the doors to your business, however, you can also deduct any recurring expenses that you have to operate the business, such as rent, utilities, office supplies, repairs and improvements, and even the cost of advertising and promoting your business.
Meals and Entertainment If you ever regularly provide any meals or entertainment for yourself, employees, or clients the cost of food, beverages, taxes, and tips can be deducted as long as it was for business purposes.
Business and Professional If you've purchased any books to assist you with running a business, even books that provide legal and tax advice, they can be deducted. Additionally, the fees that you paid to consultants, lawyers, or financial advisors are also fully deductible.
Education Anything that has been used to educate and develop you and your employees can be deducted. This includes everything from books, magazines, DVDs, training manuals, online courses, workshops, seminars, and trade shows.
Employees and Retirement Contributions You're allowed to deduct the salaries and wages that you pay your employees, as well as the amount of money you put into employees' (and your) retirement plans. Just be aware that any payments that sole proprietors, partners, and LLC members take from the business are not considered salaries, which means that they nondeductible.
If you don't have employees, but have used independent contractors who you have paid more than $600 to for their services, you can deduct these contractor labor costs by issuing Form 1099-MISC.
Bad Debts If a client owes you money and you're unable to collect it that's considered a bad debt. And, fortunately for you, it's deductible.
Insurance The cost of your business owner's policy, malpractice coverage, and business continuation insurance are all fully deductible. However, there are two rules to know when it comes to health coverage. A small business is allowed to claim a tax credit for up to 50 percent of the premiums and the cost of health coverage for the self-employed individuals and more-than-2 percent S corporation shareholders can not be deducted. Instead, these premiums will be deducted on the owner's personal tax return.
Health care costs can also be deducted, but the amounts and procedures will vary based on the type of business you're filled under. For example, for proprietorships, health insurance premiums are 100 percent deductible on Form 1040 as an adjustment to income as long as the deduction isn't more than your business's net profit.
Interest Have you used a line of credit or personal loan to finance business purchases? If so, those interest and carrying charges are fully tax-deductible.
Taxes Any taxes that have incurred while operating your business are usually deductible. This can include:
- The sales tax you've had to pay on the items you've purchased for your business.
- Excise and fuel taxes.
- Employment taxes, including the employer share of FICA, FUTA, and state unemployment taxes
- State income tax can be deducted on the federal tax return as an itemized deduction.
- Real estate tax, along with licenses and regulatory fees, on any business property.
Conclusion To make sure that you're prepared when tax season comes around make sure that you're aware of the small business tax deductions you can take by doing your research, staying up-to-date with the latest regulations, maintaining accurate and thorough records of your expenses, and contacting a good accountant early in the year.