businessBusiness Coachingbusiness growthconsultantFinanceProcess Improvementsmall-businessSpecials and discounts11 Small Business Tax Deductions That Will Save You Real Money This Year

December 8, 2021by Mikerash0
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If you own or manage a small business, you know running it requires a great deal of time and money. A simple way to boost your profits is to make sure you are taking all the deductions you are entitled to on your tax return.

This can lower your taxable income while enabling you to hold on to more working capital for your business.

However, U.S tax code for small businesses can be complicated, and regularly changing laws make it nearly impossible for owners to keep up. If you’re not fully aware of the long list of deductions you can claim, follow our guide to tax write-offs for small businesses below. 

While our list covers most of the common things your business can claim, it’s strongly advised that you seek the counsel of an experienced CPA to make sure you’re not missing out on any deductions you’re entitled to. 

What Are Small Business Tax Deductions?

Small business tax deductions are business expenses that you can legitimately subtract from your taxable income. 

The IRS states that business expenses must be both “ordinary and necessary to be considered deductible.”

  • An “ordinary” expense is one that is common and accepted in your business. 
  • A “necessary” expense is one that is helpful and appropriate to your business. An expense generally doesn’t have to be indispensable, however, in order to be considered necessary. 

Many types of qualified business expenses are specifically addressed on the tax return, with a line to enter the deductible amount. Other qualified expenses can be listed separately.

How Do Small Business Tax Deductions Work?

While all businesses are required to file a tax return, the amount that you pay in taxes depends on how much your business has earned after each qualified expense has been deducted. 

A small business tax deduction is an expense that you can deduct from your income to reduce your federal and state tax bill. 

A 100 percent tax deduction is a business expense of which you can claim the entire cost on your income taxes. In some cases, however, you may only be able to claim a portion of the expense on your tax return.

  1. Advertising/Marketing

To expect any business to grow, people first need to know that you exist. Since marketing and advertising activities are directly tied to how much income your company brings in, they are deductible as well.

Typically, the cost of advertising and promoting your business is 100 percent deductible. 

This can include costs associated with business logo design, launching your website, buying ad space in print or online media, running a social media marketing campaign, or sponsoring an event.

2. Travel

If travel is a necessary component of running your business, for example: visiting clients and vendors or attending industry events, your travel expenses may be considered write-offs. This can include transportation, hotel stays, and meals; as always, make it habit to keep good receipts. 

3. Insurance

At the bare minimum, your company should have at least one type of insurance coverage – for staff as well as the organization itself. There are many different kinds; some are universal and some are industry specific. Operating without any is comparable to playing roulette – so first make sure you’re covered, then make sure you take the deduction.

As the business owner, your personal health insurance is completely deductible. If you offer health insurance to your employees, a portion of that will also reduce your tax burden.

4. Equipment Depreciation

Depreciation is a way of spreading the cost of business equipment or assets over time. It essentially measures how much an asset’s value has been used up or exhausted during the year. 

Items that can be depreciated by small business typically include computers and other office equipment, machinery, office furniture, and business vehicles.

5. Vehicles

If you use your car for business activities, such as driving to see a client or going to the store to buy office supplies, the costs may be tax deductible as long as you keep track of the mileage.

If you have only one vehicle and use it for both personal and business needs, you will likely need to separate the mileage in order for car expenses to be considered a self-employed tax deduction.

Any vehicles used in your business qualify as a deduction when it comes to expenses related to normal operation and maintenance. 

6. Bad Debt

If you loaned money to an employee, client, or a supplier and you have yet to see your cash back, you may be able to claim the debt as a business tax deduction. The same rule applies if you made credit sales to customers that were never paid. 

Usually, you need to be able to prove that it was a business debt – as personal loans don’t qualify.

7. Office Supplies

Office supplies definitely fall under the IRS’s definition of “ordinary and necessary” for determining if something is tax deductible, meaning that each pen, pencil, sheet of paper, and toner cartridge you purchase for your business can typically be written off on your taxes. 

For supplies to be deductible, they generally need to be considered essential to running and maintaining a functional office. It can be a good idea to keep receipts and categorize these small business expenses as you go. This can make it easier to file your taxes at the end of the year.

Don’t overlook the things you use every single day to keep your business organized and running when it comes to saving money at tax time!

8. Legal/Professional Fees

This category includes expenses incurred hiring professionals like bookkeepers, accountants, and tax preparers for your business.

Professional fees may also include any expenses related to obtaining or maintaining professional licenses or memberships in an industry organization. 

9. Rent

If you rent or lease the space where your business is located, these costs are tax deductible.

If your business operates out of your home, you may be able to take advantage of some deductions as well. If you pay rent for an office, warehouse, retail space, or other type of business property, that monthly rent expense may be fully tax-deductible. If you deduct rent as a business expense, you will typically not be able to take the home office deduction as well.

10. Employee Salaries

Any wages you pay to W-2 employees of your company are fully deductible on your taxes.

11. Employee Benefits

Money you spend on benefits for your employees may be tax deductible. There are certain limitations and restrictions, so check with CPA first. Since you are self-employed as the business owner, any money you contribute to your own retirement is also tax deductible.

 

Final Takeaways

While the above is a list of the most common business deductions you can write off, it is not exhaustive by any means. As a business owner, you are no stranger to hard work – putting in countless hours to increase profitability while religiously monitoring your bottom line. 

Taxes aren’t anything to settle for “okay” service with. When it comes to your business and its association with the IRS, you deserve to make sure that everything is done accurately and on time. Beyond the most common write-offs, you should be well informed and able to claim every possible deduction that your business qualifies for.

MCDA CCG’s financial advisors have been helping businesses of all sizes save a significant amount of money for years during tax season. Our tax experts are not only proficient at finding valuable tax deductions, we can ensure flawless returns so that you can rest easy. 

Understanding which business expenses qualify can help you avoid overpaying come tax time, and also help guide your business decisions throughout the year.

Don’t put this off any longer, contact one of our financial advisors by calling our office (headquartered in Placentia, Orange County, California) today to hear about our year-end, limited time specials!

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