Tax deductions can be the lifeline of a small business owner. By taking advantage of as many tax breaks as possible, your taxable income will decrease and Uncle Sam will receive less of your cash in taxes.
Here are a few important deductions you should keep in mind for your business, which will help save you money and reinvest it back in it. Just make sure that you maintain accurate records and follow all guidelines associated with each one.
1. Home Office Deduction
Home office deduction is one of the most sought-after tax breaks for self-employed individuals, but to claim it legally you must fulfill certain criteria. These include using part of your home regularly and exclusively for business activities – any occasional or incidental uses don’t count; also having an official business like consulting or writing firm or investment management company with rental properties to manage.
The home office deduction allows you to claim a portion of the business expenses associated with mortgage interest, real estate taxes, insurance and utilities as a deduction for business use. It includes furniture such as desks, chairs and filing cabinets used specifically for your work activities – this also applies for costs such as phone lines, internet connections and alarm systems specifically used for work use – you can even claim an standardized deduction of $5 per square foot of designated work area up to 300 square feet!
2. Business Mileage Deduction
Use of your own car for business can be expensive, whether driving to meet clients or running errands like depositing customer checks in the bank. But these expenses could be tax deductible!
Your mileage deduction can be claimed either using the IRS-set standard mileage rate or by keeping track of actual costs. Using the standard rate is more straightforward as it only involves making one calculation (multiplying business miles by an established per-mile rate).
The actual expense method, on the other hand, can be more involved and requires meticulous recordkeeping. Luckily, apps like MileIQ, TripLog, and Everlance provide convenient tracking solutions so that accurate mileage reports can be filed come tax season. Just keep in mind that your mileage deduction only applies for travel related to work purposes – not commutes between home and workplace!
3. Business Rent Deduction
If your business reaches the point where it needs a separate office outside your home, its costs are tax deductible under IRS rules. Provided your rent is reasonable when compared with comparable properties in your area and records are kept to prove legitimacy of deduction, this tax break could significantly lower taxable income and potentially save thousands each year.
C-corps, S corporations, and LLCs may pass rental expenses through to individual shareholders to reduce their personal income tax bill in much the same way as mileage expenses are reported on Schedule C. With careful tax planning strategies in place, businesses may maximize rent deductions while remaining compliant with tax law requirements.
Partner with an experienced and knowledgeable CPA when contemplating any tax planning strategies. They can offer tailored guidance, assist in identifying additional qualified deductions, and ensure compliance with current tax laws. Get in touch with a local firm of Certified Public Accountants today to discover how they can save you money while expanding your small business.
4. Business Insurance Deduction
Many small business owners dislike paying insurance premiums, but the IRS recognizes them as tax deductible expenses. So long as your business needs insurance for specific reasons (like state regulations or industry contracts or contract terms) and it meets ordinary and necessary criteria then these expenses qualify as deductible expenses. Here are some policies which might qualify:
IRS rules permit you to deduct more than just rent payments when it comes to writing off costs for traditional office supplies such as pens, Post-it notes and printer ink. Furthermore, marketing materials used to promote your business and attract new customers such as Facebook ads, billboards or mail fliers may also qualify.
Claim deductions that qualify to lower your taxable income and you could save yourself both money and avoid costly mistakes at tax time by speaking to a RamseyTrusted tax professional. They’re here to help ensure all eligible deductions are claimed, helping save both time and money come tax season.
