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Understanding Tax Deductions for Businesses

Are you taking advantage of all the tax deductions available for your business? 

Most business owners are looking for opportunities to reduce the amount of tax they owe each year, and one of the simplest ways to lower taxable business income is by claiming tax deductions for your business. While tax write-offs require detailed recordkeeping, itemized expenses, and careful planning, the results can make a significant impact on the amount of taxes your business has to pay. 

What Are Small Business Tax Deductions?

Business tax deductions, also known as tax write-offs, are qualified expenses that you can deduct from your business’s annual taxable income. Tax deductions help reduce the amount of taxes your business may owe when it comes time to file your return.

These qualified expenses must fit criteria established by the Internal Revenue Service (IRS) in order to be considered legal tax deductions.

16 Tax Deductions for a Business 

There is a wide range of legal tax write-offs small businesses can use to lower their taxable income, and many business owners do not take full advantage of all the tax deductions the IRS has to offer. 

If you are interested in reducing the amount of tax your sole proprietorship, S corporation, C corporation, limited liability corporation (LLC), or partnership owes each year, start by considering whether your company is eligible for any of the following business tax deductions: 

1: Business Property Rent

The lease or rental payments you make on your business property are deductible from your taxes. If you have a home office that is exclusively and regularly used for business purposes, you may be entitled to a deduction. It is recommended that you consult with the IRS, or tax preparer to determine the maximum deduction.

2: Utilities

Utilities like water, electricity, phones, and trash that are used for your business are deductible. If you conduct business out of a home office, the cost of your first phone line is not deductible.

3: Insurance

Most businesses invest in some form of business insurance, such as property insurance, liability coverage, business interruption insurance, workers’ compensation insurance, malpractice insurance, business continuation service, or other policies. The cost of insurance policies are often 100% deductible.

4: Travel Expenses

Do you or your employees travel for business? If so, you can deduct expenses like airfare, taxis, tolls, lodging, and more.

5: Car Expenses

If you use a car for business purposes, you can usually deduct mileage and other car-related expenses. However, if you use a vehicle for both personal and business purposes, you must divide the two expenses based on actual mileage.

6: Entertainment & Meals

Meals and events necessary to your business can be deducted, although certain types of meals are only deductible up to a certain percentage. If you entertain clients or provide meals at an office party, you may be able to deduct some of these expenses.

7: Employee Salaries & Fringe Benefits

Generally, employee wages, bonuses, and commissions are fully deductible. You can also deduct fringe benefits that you provide your employees, including, fitness memberships, gifts (a maximum of $25 per gift per year), health insurance premiums, life insurance policies, and business retirement plans.

8: Contracted Labor

Independent contractors, laborers, and freelancers are a popular way for many businesses to expand their workforce. If you use contracted labor, hiring costs are tax deductible.

9: Legal & Accounting Services

Have you consulted with an attorney or hired an accounting professional? If these expenses are directly related to operating your business, you can consider them business expenses and therefore are able to deduct the cost of these services.

10: Education & Conference Expenses

If you attend conferences or participate in educational programs as part of your field of work, you may be able to deduct related costs from your taxable income. Some of the qualifying expenses that fall into this category include seminars, classes, courses, registration fees, workshop costs, trade publications, and industry-related books. 

11: Equipment & Machinery Rental or Depreciation

Do you lease equipment or machinery for your  business? This category can include anything from printers and copiers to vehicles. If you rent these items, you can deduct the costs, and you may be able to claim depreciation as well. 

12: Office Supplies & Furniture

Office supplies (pens, printer paper, calculators, staplers, cleaning products, etc.) and furniture are deductible from your taxes as well—assuming you use them strictly for your business. 

13: Software Subscriptions & Online Tools 

What software subscriptions and online tools do you rely on to operate your business? Subscriptions or tools such as accounting software, the Microsoft Office suite, video conferencing software, or cloud platforms for file storage may be tax deductible.   

14: Advertising & Marketing 

You can claim advertising and marketing expenses as a business tax write-off, if they directly or indirectly promote your business. Billboards, flyers, business cards, social media advertisements, and sponsorships on podcast episodes all fall into this category. 

15: Taxes

You may be able to deduct a variety of taxes that relate to your business.  

16: Interest & Bank Fees

If you have a business loan or use a business credit card, you may be able to deduct the interest charges as long as they are related to your business. Additionally, bank maintenance fees for your accounts are generally deductible as well. 

How to Maximize Tax Deductions for a Business

Understanding which business tax deductions you may be eligible to claim is the first step. However, there’s more to tax write-offs than knowing your options—you must also ensure you navigate the tax system legally, maintain long-term financial records, and consult with a tax professional. 

To ensure you maximize tax deductions for your business and lower your annual tax liability as much as possible, keep these tips in mind. 

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You must keep detailed and organized financial records to support all the tax deductions you claim for your business. Retain copies of tax documents, receipts, mileage logs, proof of purchase documents, invoices, 1099 forms, licenses, and incorporation paperwork to corroborate any write-offs you claim. 

Save copies of these records for at least seven years. 

Use Business

Business accounting software will help keep your business’s finances organized, ensure you stay on top of expenses throughout the year, and provide you with the financial information you need to claim the right deductions when tax season comes around. No matter what type of accounting software you decide to use, make sure you have a system in place to manage finances. 

Seek the Advice of an Experienced Tax Professional 

Taxes are complicated and confusing, and the IRS is constantly updating regulations and presenting new rules. That’s why it’s a good idea to consult with an accountant who is experienced in tax compliance. An accountant will ensure you claim the most tax deductions possible, prevent mistakes, and help your business save money. 

Contact Fisher, P.A. for Small Business Accounting & Tax Planning Assistance

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