With tax season just around the corner, business owners are all gearing up to file and pay their taxes.
At first glance, the amount you have to pay might seem overwhelming. However, if you factor in tax deductions, paying off your taxes won’t be as painful anymore.
What’s a tax deduction?
Tax deductions are deductions that lower your business’ taxable income, thereby lowering your tax liability.
Today, we’re looking at 12 tax deductions that you need to know about as a business owner. Some of these are well-known deductions, while a few might surprise you.
Let’s dive in.
Hiring an employee can get expensive for small businesses. But the good news is that you may deduct from your taxable income any salary you pay to your employees.
However, to deduct your employee’s salary and benefits from your tax, they’ll have to meet certain criteria:
- The employee is not a proprietor or partner of the business (you can’t be your own “employee”)
- The salary is reasonable (don’t try to trick the IRS by listing a huge salary just to deduct more taxes)
- The services delegated to your employee were provided
If you meet those requirements, you can deduct the total amount of salary you pay to your employees.
2. Professional Services
Aside from employees, you may also deduct the money you pay to professionals for their services.
Any professional fees that you pay for your business, such as photographers or accountants, can be deducted from your taxable income.
Again, there are regulations you need to follow while deducting these fees. You can find these on the IRS’s website.
3. Business and Health Insurance
Insurance premiums are another tax deduction you should know about.
There are a number of insurance types that you may remove from your taxable income.
- Property insurance
- Liability insurance
- Health insurance for employees
- Workers compensation insurance
- Business vehicle auto insurance
- Life insurance (employees only)
- Business interruption insurance
However, before you claim any of these deductions, it’s best to talk with your tax preparer. There are plenty of regulations you need to follow to have your business insurance premiums deducted from your taxes.
If you have purchased software to help run your business, you may deduct its cost from your taxes.
Several businesses rely on high-performance software to provide the best services to their clients.
For example, tax preparation offices need professional tax software to help manage and prepare the taxes of all their clients.
These offices may deduct the cost of that software when filing their own taxes.
Again, regulations apply. So always ask your tax professional whenever you want to deduct from your taxable income.
5. Bank Fees
Another deduction you can throw in is bank fees.
Most businesses have business bank accounts and credit cards. Any fees, such as monthly, overdraft, and transfer fees may be deducted from your tax liability.
Furthermore, if you are using other payment channels like Paypal or Stripe, you may also deduct the fees incurred from these.
However, that is only if these bank accounts are registered with your business. You may not deduct the fees for your personal bank account.
Advertising is critical for most businesses. It’s the fastest way to get your name out there to your potential customers.
However, advertising can get very expensive. From creating a logo to running an online marketing campaign, the costs can stack up.
Thankfully, you can deduct everything you’ve spent on advertising. This includes:
- Creating a professional logo
- Printing flyers, brochures, or business cards
- Buying ads in print or media
- The total cost of creating a new website
- PPC and online marketing campaigns
- Sponsored events
Anything that has to do with advertising may be deducted.
Unless you own the property your business is operating in, you’ll have to pay for rent.
Depending on where your office is, this can get very expensive.
That’s why it’ll be a big relief to you to know that this is yet another tax-deductible expense.
Furthermore, if your business requires you to rent equipment, you may also deduct the rental amount for these.
However, you may not deduct the rent you pay for your home, even if you use it as an office.
Depreciation is a tricky deductible to calculate. There are several regulations on how you should go on about this. Before you deduct depreciation of your big-ticket items – such as cars and heavy equipment – check out IRS’s article on this, or talk to your tax preparer.
When you deduct depreciation, you’re deducting the cost of the big-ticket item over the lifetime of the item instead of deducting the total cost when you first buy it.
To calculate depreciation, use this formula:
Total cost of item / Lifetime = Depreciation
Most businesses today can’t keep up their level of service without a connection to the internet. Telephones are also essential for top-notch customer service.
This is why you may also deduct your business’ internet and telephone expenses.
Again, you may not deduct the internet and telephone expenses for your home.
One thing that several small business owners who have a home office do is to get a second internet line for their business. If your work is internet-heavy, this can save you a lot when tax season rolls around.
10. Business Vehicle
Gas, registration, maintenance, repairs – any expense that comes from operating your business vehicle may be deducted from your taxes.
If your vehicle is 100% used for business operations, you can deduct all of the expenses. But if it is also used for personal reasons, you may only deduct expenses when you were using the vehicle for business purposes.
Yes, it’s a bit complicated. But with careful tracking, you should be able to deduct a fair amount from your business vehicle.
Travel, or, more specifically, business travel, is another deductible. When you go on a business trip, you can deduct your expenses for:
- Transportation (airplane, bus, train, etc)
- Taxi fares for business purposes
- Shipment of luggage to business destinations
- Meals and lodging
And more. Most of your expenses while you are on a business trip qualify for tax deductions. So take note of your spendings!
One of the most surprising deductible items is food.
Of course, all the food deductibles have to be in a business setting. And there are several qualifications for you to enjoy a 50% deductible on your food expenses:
- Food expenses must be integral to your business operation
- Expensive feasts do not qualify
- You or an employee must be present at the meal
Team building picnics may qualify for 100% tax deduction. Whenever you have one of these, make sure to keep all the receipts and documentation. These will come in handy when it times to deduct your taxes.
With all those deductions, your tax due will look a lot less intimidating. So make sure you keep all the records of your business expenses, you’ll be thankful you did when tax season comes around.
Also, discuss with your tax preparer which other deductibles you can go for.