The objective of every business owner is to minimize expenses and maximize profits. One of the best ways of reducing expenses is by lowering your taxable income through tax deductions. It would be best if you talked to a professional such as a CPA in order to claim as many deductions as possible. Taking time to identify all the right deductions can save your business thousands of dollars annually.
Top 10 Deductions for Small Businesses
1. Business meals
Small business owners can deduct up to 50% of drinks and food bought that qualify as deductibles. The drinks or meals must be provided when the business owner or an employee is present. You must also keep a record of the date and location of the meal, the total cost of the meal, and the relationship of the person you dine with. The best way to do this is to keep all receipts and write notes on the back.
2. Education expenses
Training is necessary and sometimes mandatory for some businesses to improve employees’ skills and knowledge. You can leverage on expenses that go towards workshops, seminars, and other forms of training. Expenses related to education to grow your business may qualify as tax deductibles.
3. Home office costs
You can leverage deductions like utility bills, rent, painting and repairs, insurance, and office supplies if you operate your business in a home office. However, the Internal Revenue Service (IRS) requires businesses operating from home to meet specific criteria. For example, the office space must only be used for work.
4. Work-related travel expenses
All travels related to your business, such as hotel accommodation, airfare, car expense, tips, rental car expenses, dry cleaning services, and many more, qualify as tax deductibles. You can refer to the IRS website for a comprehensive list of deductible business travel expenses.
5. Wireless phone service bills
Communicating with clients or other business partners is unavoidable for most businesses. Although some business owners may acquire a dedicated phone for business operations, some may continue using their personal phones. You can still deduct a portion of the expenses even if you mix business and personal calls.
6. Regulatory licensing fees
Most states require that businesses obtain licenses, permits, and other regulatory documentation to conduct their activities. IRS allows you to deduct part of the expenses to acquire the necessary documentation.
7. Business Insurance
Small business owners are also allowed to deduct the cost of their business insurance on their tax returns. In case you are operating from a home office, IRS allows you to deduct your renters insurance expense as part of your home office write-offs.
8. Petty cash purchases
Unbudgeted and minor expenses like an impromptu business engagement with meals or a morning coffee meeting can add up to a considerable amount by the end of the year. Such purchases are usually covered by petty cash. These expenses also qualify as tax deductibles.
9. Office supplies
As a small business owner, you can write off office supplies such as pens, printing machines, papers, work-related software, and computers, among others. You can also exclude work-related postage and shipping costs. Ensure to keep all receipts for every office supply purchased.
Depreciation means deducting the cost of expensive items such as machinery or vehicles for the time they have served rather than writing them off at once in one tax year. Business owners usually write off depreciation for costly long-term business investments.
In a nutshell, leveraging on tax deductions can help businesses save a lot of money. However, it is crucial to note that this list is merely a guideline, and every type of business is unique. It would be a good idea to consult a professional to help you know how to get the most out of tax deductions.