Many business owners miss out on valuable tax deductions that can greatly lighten their tax load each year! Dive in to explore essential insights on business deductions and learn how they can reduce your tax burden.
Tax deductions to consider
Believe it or not, there are a lot of tax deductions out there. Depending on your business type,
you might be eligible for tax deductions you never considered before. Here are some deductions you should know before the next tax season.
Business meals
You can deduct food expenses as long as your meals are work-related. Hold on to your receipts and maintain an accurate log of the money you spend on your meals. Update your records with the date and location of your food-related expenses. Also, make a note detailing the business relationship of who was with you.
Business travel
The IRS has strict rules when it comes to claiming business travel deductions. For starters, your trip must be an overnight event. The trip can be deducted by a business only if you traveled at least 100 miles from your residence. Also, anything you deduct must be within the parameters of ordinary and necessary expenses.
Maintaining a record of all expenses associated with your business trip is best. These receipts will be a lifesaver when it comes time to file your taxes, especially if the IRS audits you. Some examples of reasonable costs include transportation — like airfare, train tickets, rideshares, taxis, and car rentals — and money spent on hotels or Airbnb, among other expenses.
Employee salaries and benefits
Have you considered tax deductions pertaining to employee salaries and benefits? They exist, but the cost of these business-related items is deductible only if you employ people other than yourself. In addition to wages and benefits, you can deduct paid time off, commissions, bonuses, and payroll-related employment taxes.
Business credit card and loan interest
If you want to deduct interest from business credit cards and loans, adhere to the rules set forth by the IRS. You have to be the person who is legally liable for the debt. A debtor-and-creditor relationship must exist between you and your lender. Additionally, you and your lender must understand that you intend to repay the debt you owe.
Independent contractors
The money that you pay for business-related services — namely from independent contractors and freelancers — can also be written off on your taxes. However, remember that any contractors you pay cannot be your company's employees.
Also, the services they perform must be for your business, not for personal reasons. If you've paid a contractor or freelancer more than $600 in a given tax year, complete Form 1099-NEC. Otherwise, you'll run the risk of penalties and fees imposed by the IRS.
Business bank fees
Has your bank ever charged you a monthly fee in exchange for access to the bank's services? What about overdraft fees or wire transfer fees? If so, you can deduct these fees from your taxes as long as the fees pertain to business matters. Also, if you sell products and collect money via a third-party payment vendor, like PayPal or Square, those fees are eligible for tax deductions.
Startup business expenses
If you recently launched your company, you already know how expensive the costs of starting your business can be. The good news is that the IRS permits new business owners to deduct 100% of all startup expenses, though the limit is $5,000. You can deduct costs from hiring a business consultant, traveling to conferences, attending training events, building a website, and launching a marketing campaign.
Business losses
Did you lose money during any given tax year? If so, the IRS says you can write off that money as a loss. As a sole proprietorship or LLC owner, you can write off your losses in full. Plus, you will not be susceptible to penalties if you experience business-related losses for many years.
Legal and professional fees
Have you paid for professional services to assist with your business? You can deduct the cost of accountants, lawyers, bookkeepers, and other professionals - provided the services relate to your business in necessary and relevant ways.
Charitable contributions
If, at any point during a given tax year, your business donated money to a qualified charity, you can deduct the donation to help lower your tax liability. That said, note that you can only write off 60% of your donations to charity if you made a cash contribution.
Retirement plan contributions
As a business owner, you are likely the only person contributing to your retirement plan. If that's the case, the IRS lets business owners deduct these contributions from your income taxes if you have an eligible retirement account. Contact a financial professional to see how each option works.
Depreciation
Do you own any depreciating business assets? The most common depreciating business asset is real estate, like your office, though this is not all that depreciating assets entail. Ultimately, if you have any assets that depreciate, you can deduct them as long as they qualify in the eyes of the IRS.
For qualifying assets, complete Form 4562 and send it to the IRS along with your tax return. There are some restrictions, like only being able to claim depreciation-related deductions for computers and cars over a five-year period. Likewise, with furniture and appliances, you can only write off the depreciation over seven years.
We know deductions
More deductions are available to business owners than we covered above. Also, details and specific limits can change, often with little warning. That's why partnering with a knowledgeable tax and accounting firm is essential.
At Fischer Advisors, we know the range of deductions available to small business owners. Our team is here to help you take advantage of the business deductions you are entitled to and assist with your quarterly estimated payments – saving you money in the long run.