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Small Business Tax Deductions Every Business Owner Should Know About

Small Business Tax Deductions

Small Business Tax Deductions Every Business Owner Should Know About

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Deductions are an important aspect of filing taxes, primarily to save money and ease your tax burden.  There are many different types of deductions, however, and it can be difficult to keep track of them all.

For example, the most common deduction is the standard deduction, which is a set amount that you can deduct from your income regardless of your circumstances.

This article will provide an overview of the most common deductions so you can ensure you’re taking advantage of them come tax time.

What Are Small Business Tax Deductions?

Business deductions are expenses that can be subtracted from your taxable income when you file your taxes. This lowers the amount of taxes you owe, which can save you money.

There are many different types of business deductions, but some of the most common include:

  • Business travel expenses: If you travel for business, you can deduct the cost of your travel expenses from your taxable income. This includes things like airfare, hotel stays, and rental cars.
  • Office expenses: If you have a home office or an office outside of your home, you can deduct the costs associated with it from your taxable income. This includes things like rent, utilities, and furniture.
  • Advertising and marketing: If you spend money on advertising or marketing for your business, you can deduct the costs from your taxable income. This includes things like online ads, print ads, and TV commercials.
  • Employee salaries: If you have employees, you can deduct their salaries from your taxable income. This is a large deduction for many businesses, as it can represent a significant portion of their expenses.
  • Business mileage: If you use your personal vehicle for business purposes, you can deduct the cost of your mileage from your taxable income. This deduction is calculated by taking the number of miles driven for business multiplied by the IRS standard mileage rate.

These are just some of the most common deductions that small businesses can take advantage of. Below, we’ll detail some more deductions you can file for.

Bad Debt

If you have customers who owe you money that you can’t collect, you may be able to deduct their debt from your taxable income as a business loss. This is known as a bad debt deduction.

To qualify for this deduction, you must be able to show that the debt is truly uncollectible. This usually requires that you’ve made a reasonable effort to collect the debt, such as sending multiple bills or making phone calls.

You can deduct the full amount of the debt if it’s considered wholly uncollectible. If only part of the debt is uncollectible, you can only deduct that portion.

For example, let’s say you have a customer who owes you $1,000 but refuses to pay. You send them multiple bills and make several phone calls, but they still don’t pay. You can deduct the full $1,000 from your taxable income as a bad debt deduction.

If you later receive partial payment from the customer, you’ll need to repay the IRS for the amount you received, plus interest and penalties.

This deduction is only available to businesses that use accrual accounting. If you use cash accounting, you can’t deduct bad debts because you haven’t actually lost any money until the debt is fully written off.

Business Meals and Entertainment

You can deduct the cost of business-related meals and entertainment from your taxable income. This includes things like business lunches, client dinners, and tickets to sporting events.

To qualify for this deduction, you must be able to show that the expenses were incurred for bona fide business purposes. This means that the expenses must have been incurred in the course of conducting business and not for personal reasons.

For example, let’s say you take a potential client out to dinner to discuss a business deal. The cost of the dinner would be deductible as a business expense. However, if you took a friend out to dinner with no discussion of business, the cost would not be deductible.

The IRS has strict rules for deducting business meals and entertainment. You can only deduct 50% of the cost of these expenses.

For example, let’s say you take a client out to dinner and the bill comes to $100. You can deduct $50 from your taxable income as a business expense.

It’s important to keep good records when claiming this deduction. You should save receipts for all business-related meals and entertainment expenses.

Business Insurance

The cost of business insurance can be deducted from your taxable income. This includes things like property insurance, liability insurance, and workers’ compensation insurance.

This deduction is available to all businesses, regardless of whether they use cash accounting or accrual accounting.

For example, let’s say you pay $1,000 per year for property insurance on your business’s office. You can deduct the full $1,000 from your taxable income as a business expense.

It’s important to keep good records when claiming this deduction. You should save receipts or canceled checks for all business insurance premiums you pay.

Business Loan Interest

If you have a business loan, you can deduct the interest you pay on the loan from your taxable income.

This deduction is available to all businesses, regardless of whether they use cash accounting or accrual accounting.

For example, let’s say you have a business loan with an interest rate of 10%. You pay $1,000 in interest on the loan over the course of a year. You can deduct the full $1,000 from your taxable income as a business expense.

It’s important to keep good records when claiming this deduction. You should save receipts or canceled checks for all business loan interest payments you make.

Education and Training

The cost of education and training can be deducted from your taxable income. This includes things like tuition, books, and course materials.

To qualify for this deduction, the education and training must be related to your business. For example, let’s say you’re a web designer who takes a course on HTML coding.

The cost of the course would be deductible as a business expense. However, if you took a cooking class, the cost would not be deductible because it’s not related to your business.

Equipment Depreciation

The cost of business equipment can be deducted from your taxable income through depreciation. Depreciation is a method of write-off that allows you to deduct the cost of an asset over its useful life.

For example, let’s say you buy a computer for your business for $1,000. The useful life of the computer is five years. You can deduct $200 per year from your taxable income for five years.

This deduction is only available to businesses that use accrual accounting. If you use cash accounting, you can’t depreciate equipment because you haven’t actually used it yet.

Gifts

The cost of business gifts can be deducted from your taxable income. This deduction is limited to $25 per person per year.

For example, let’s say you give a client a gift that costs $50. You can deduct $25 from your taxable income as a business expense.

It’s important to keep good records when claiming this deduction. You should save receipts for all business gifts you give.

Interest in Business Credit Cards

If you have a business credit card, you can deduct the interest you pay on the card from your taxable income.

This deduction is available to all businesses, regardless of whether they use cash accounting or accrual accounting.

Conclusion

These are just a few of the many deductions available to businesses. To save money on taxes, it’s important to take advantage of all the deductions you’re entitled to.

It’s also important to keep good records. Be sure to save receipts, canceled checks, and other documentation for all business expenses you incur. This will help you maximize your deductions and minimize your tax liability.

 

If you want accurate bookkeeping for your business, consider hiring a reputable accounting firm. One of the trusted accounting firms in Florida is Swiftbooks, LLC. Call 786-204-2881 today to help your business keep its financial records straight!

Further Reading

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