The Small Business Guide to Tax Deductions
Taking advantage of business deductions can positively impact your small business. But knowing which deductions you should report and managing your records can be a total headache.
In a previous post, 5 Ways to Make Business Taxes Run Like Clockwork, we skimmed the surface of the types of deductions you should consider calculating ahead of time to make tax season go as smoothly as possible.
This post takes a deeper dive into the tax deductions your small business should take advantage of this year. From general deductions like insurance and loan interest to client and employee deductions like benefits and entertainment, you’re sure to discover a deduction your small business can take advantage of this tax season.
In this post we’ll cover:
- General tax deductions every small business should be reporting
- Operating deductions you may be missing
- Client and employee deductions to take advantage of this tax season
General Deductions
There are several great tax deductions every small business should be taking advantage of that fall within this General Deductions category. These are deductions you are likely aware of and already form a large part of your deductions on your tax form every year.
General deductions for your small business may include:
Insurance
Insurance policies come in all shapes and sizes to fit your particular needs. If you have business insurance, property insurance, liability coverage, worker’s compensation insurance, and even health and life insurance for both owners and employees, you can deduct these expenses from your yearly tax filing.
Professional Fees
Hiring professional help like attorneys or bookkeepers for your small business is a tax-deductible expense. By now you know that you can’t run a business without expert help, but if you haven’t been calculating these professional fees in your yearly tax deductions, it’s time to start.
Marketing
Marketing your small business is an integral part of maintaining a healthy, growing business. Marketing expenses like paying for online ads or physical marketing materials like mailers are 100% tax-deductible. With a great incentive like this on your side, think of new ways you can get the word about your business out there!
Taxes
Yes, even your federal, state, and local taxes are business deductions your small business can take advantage of! The taxes you pay to the government, for your real estate, sales tax, and even your employer-based taxes like FICA and FUTA are completely deductible from your small business tax filing.
Loans
If you have a business loan at a traditional lending agency, the interest on any of those loans is considered a tax deduction for your small business. Although this deduction does not apply to loan arrangements from friends and family members, it can still be a great way to lower your tax bill this year.
Operating Deductions
Operating deductions cover a wide array of expenses that you may be overlooking when filing your small business taxes.
Keep the following operating deductions in mind when calculating your tax deductions this year:
Utilities
The expenses you incur for running your business like electricity, water, trash collection, and telephone bills are all tax-deductible. Keep in mind these rules may differ if you operate your small business from a home office.
Rent
This deduction is straightforward – any expenses you have related to leasing a physical space for your business are tax-deductible. This tax deduction may sometimes be applied to your home office if you do not have a physical space, but certain IRS criteria must be met before applying this deduction.
Depreciation of Equipment
If your small business relies on any equipment like printers, copiers, vehicles, or other machinery, you may deduct the depreciation of these assets from your taxes. This is a special type of deduction that is made over a period of a few years. Learn more about filing a Section 179 deduction.
Software, Supplies, and Furnishings
Office supplies are often the most underutilized tax expense for many small businesses. It’s easy to forget to write off the pens your staff uses, the new ergonomic office chairs, or the Microsoft Office software your employees use, but these can be impactful tax deductions for your small business.
Car Expenses
Though car expenses are fully deductible, you may have trouble keeping track of this expense. The IRS requires you to maintain proof of business usage for any car expenses and requires you to maintain an accurate mileage log. Keeping an accurate log may be difficult if you use the vehicle for both business and personal use.
Client and Employee Deductions
If you hire employees or contractors to help you run your small business, many of the benefits you offer them are fully tax-deductible. Everything from payroll taxes, health benefits, and entertainment expenses like lunches and events are tax-deductible. Hiring contractors to help you service your clients is also a tax deduction you want to take advantage of if you haven’t already.
Additionally, any travel expenses you or your employees or contractors incur as part of normal business operations should be taken into account when filing your deductions at tax time.
Managing your tax deductions
Now that you know the tax deductions you can be taking advantage of as a small business owner, you may be feeling a bit overwhelmed about where to start. That’s where we can help!
At Cindy’s Mobile Bookkeeping we help you clean up your books, manage your expenses, and account for every tax deduction your small business may leverage at tax time. If you’re ready to hand the baton over to the professionals, we’re ready to take it to the finish line.