Since small businesses are what drives the economy, the government has created initiatives to help them grow, like small business tax deductions.
While these incentives offer savings, there are few things to know before starting tax planning.
What is a Business Tax Deduction?
A tax deduction is a reduction of income that is eligible for taxation by the government. Business expenses that are both ordinary and necessary may be eligible.
An ordinary expense is defined as money spent for things that are common and accepted in that line of work.
A necessary expense is an expenditure that is considered helpful and appropriate in your area of business.
Small business tax deductions can include:
- Health insurance
5 Small Business Tax Deductions you don’t want to Miss
1) Auto Expenses
The IRS allows businesses to deduct mileage, parking fees and tolls for their vehicles which are used in a professional capacity.
Actual expense method: Monitor and deduct all business-related auto expenses over the course of the year.
Standard mileage rate method: Deduct the standard mileage rate for each mile driven, plus tolls and parking fees.
The standard mileage deduction is the most popular, because it is easier and oftentimes yields a larger deduction. To qualify, make note of each trip’s starting point, destination, total mileage and business purpose.
2) Furniture, Equipment and Supplies
Office furniture is another item that can be deducted.
Businesses may write off 100 percent of the cost of a piece of furniture or a portion of that expense over a seven-year period.
Items also eligible include:
- Fax machines
3) Expenses to Start-up or Expand your Business
Some of the expenses related to starting up or expanding a business are also eligible for a tax deduction.
According to the IRS, the cost of “investigating the creation or acquisition of an active trade” can be written off as a capital expense. These costs could include expenses like product analysis and visits to potential business locations.
The catch is that these deductions are only applicable if the business is successfully launched.
New businesses may also deduct the cost of preparing to open, including employee training wages, consultant fees and advertising.
4) Business Entertaining
Business owners may write off entertaining clients as long as they follow these simple tips:
- Conduct business before, during or after entertaining clients.
- Don’t make the lunch, dinner, party or other event lavish or extravagant.
- Keep receipts for every expense.
Many business travel expenses are tax-deductible, including the cost of plane fare, lodging, car rental and more.
In order to qualify, at least half of the time must be spent on business-related activities. However, on the days when you are not working, destination expenses, such as hotel and transportation costs, cannot be deducted.
These are just some of the possible small business tax deductions available. Consult a preparer to learn more about tax services.