Calculating your taxes can be tricky if you run a small business. Granted, there are excellent DIY options such as TurboTax Self-Employed, and you can always hire a CPA to manage your business finances. If you do opt to do it yourself, one of the primary areas that may confuse you is related to tax deductions. You would want to claim the maximum because they can significantly lower your tax burden. At the same time, you would not want to deduct anything that is not allowed because the IRS does not favor illegitimate deductions.
The idea is to know all about the tax deductions you can legitimately claim. Several small business expenses can be considered as tax deductions. Moreover, the norms related to deductions change from time to time as tax laws are altered. So it is really important that you know what you can legitimately deduct from your income while calculating the tax burden. Here is a list of small business deductible expenses.
As a business owner, it is hard to handle everything yourself. Maybe, you don’t have the skill set to manage the bookkeeping and accounting functions and need to hire a professional for the same. Similarly, you may require the services of a professional to prepare your tax returns and give tax advice. Whatever you pay for these services can be claimed as deductible business expenses.
Another expense that qualifies as a tax deduction is the advertising, marketing, and promotional expenses. Since these expenses are made to retain the existing customers and bring in the new ones, they are essential to the survival of your small business. For this reason, you are fully entitled to deduct them from the income while calculating your taxes.
The use of vehicle for business purposes is another deduction that you can claim. Remember that you can claim this deduction only if you can prove business usage, which is the reason why tax attorneys recommend maintaining the relevant records. The deduction is to be calculated according to the IRS standard mileage rate which changes from year to year. Alternatively, you can deduct the actual expenses though you need to consider several factors for the calculation.
Every business has one or more debts that they take in the normal course of running. If you borrow money as a business loan or for purchasing a building, you will have to pay interest on it. You can claim the entire interest amount as a deduction if you run a small business having annual average gross receipts valuing $25 million or less. The deduction, however, is restricted to 30% of the earnings before interest, taxes, depreciation, and amortization for larger businesses.
Yet another form of deduction that you can rightfully claim for your small business is in lieu of the insurance expenses incurred by you. These may relate to the insurance for your business equipment. Also, you can claim it on your own health insurance and the employees’ health insurance as well.
Rent is an expense that you must absolutely make in the normal course of your business because you will need a space to operate from. Thus, rent is a permissible deduction according to the IRA norms. If you are operating out of a home office and not paying rent, you can still claim deductions for mortgage interest, utilities, insurance, repairs, and depreciation. However, you need to prove that you are using a specific part of your home exclusively for business purposes.
Everything that your small business spends on utility bills is another legitimate deduction that you can claim while calculating your taxes. After all, you cannot run your business without the lights on. Utilities cover the bills for electricity, water, heat, phone, internet and sewage and the entire sum of these bills is fully deductible.
If you use computer software and hardware as a part of your small business operations, you can claim their cost as a tax deduction. You don’t even need to depreciate them if the cost is less than $2500. Remember that only the business use of these devices is deductible. Apart from the hardware cost, you can also claim a deduction for hard drive used for backup and backup software as well.
In addition to the aforementioned items, small businesses can also claim deductions on office supplies and materials, business travel and meals, taxes, depreciation, repairs, employee benefits, and programs and mortgage interest. The rule of thumb is that any expense that is ordinary and necessary for running your business is deductible. Make sure that you follow this rule because excessive and invalid deductions will definitely get the attention of the IRS, which is something that you would not want!