As a small business owner in the US, finding ways to reduce your taxable income is essential. One of the most effective ways to do so is by taking advantage of tax deductions. These deductions, also known as “write-offs,” can help lower your overall tax bill.
Here’s a detailed guide to some of the most common tax deductions available.
Expenses related to attracting customers or growing your business are typically 100% deductible. This includes:
Compliance Tip: Keep all receipts and proof of payment for these expenses.
You can deduct 50% of qualifying food and beverage costs for business-related meals. To qualify:
Bonus: You can deduct 100% of meals provided to employees during business activities, like late-night work sessions or office parties.
Compliance Tip: Keep detailed records, including the date, location, amount, and purpose of the meal.
Premiums for business-related insurance policies are generally deductible. This includes:
Compliance Tip: Ensure all receipts and digital records are properly stored.
Depreciation allows you to deduct the cost of equipment, vehicles, and property over time. You may also use Section 179 to write off the full cost of qualifying purchases in the year they’re made.
Best Practice: Consult a tax professional to optimize your depreciation strategies.
Hiring independent contractors or freelancers for services can be deducted as a business expense. If you pay a contractor $600 or more in a year, you’ll need to send them a Form 1099-NEC by January 31st.
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If education costs maintain or improve skills required for your business, they’re fully deductible. Examples include:
IRS Limitation: Expenses for education that qualifies you for a new business or career are not deductible.
If you use a portion of your home for business, you can deduct related expenses. There are two ways to calculate the deduction:
Compliance Tip: You must use the space regularly and exclusively for business activities.
You can deduct vehicle expenses if you use your car for business purposes. There are two methods to calculate the deduction:
IRS Limitation: Commuting miles to your regular workplace are not deductible.
Interest paid on business loans or credit cards is deductible, provided the loan is legitimate and used for business purposes. Ensure that any personal loans used for business are properly documented.
Certain state and local taxes related to your business are deductible, including:
Phone and internet services essential for business are deductible. Deduct the portion used for business if you use a personal plan.
If you travel for business, related expenses are deductible. This includes:
Compliance Tip: Keep detailed records of the trip’s purpose and itinerary.
Salaries, benefits, and even vacation time paid to employees are generally deductible. Make sure the salaries are reasonable and services are actually provided.
Compliance Tip: Proper documentation and payroll compliance are key to ensuring your deductions are accepted.
Tax deductions are an essential tool for reducing your taxable income and maximizing savings. By understanding which expenses qualify for deductions, you can keep more of your earnings. For best results, maintain accurate records and work with professionals to ensure you’re making the most of every available deduction.
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