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The Top 7 Tax Deductions for Your Small Business

Accounting, Bookkeeping, Taxes

What is a tax deduction?

A tax deduction is a compulsory expanse that every business is liable to pay to the state or the government at end of a financial year. Tax is calculated as a small percentage of the total income of a business.  

Paying off taxes can be a botheration for business owners since the total amount can go up to a lot. Also, filing taxes accurately is a huge task that requires focus and precision so to ensure transpiracy and eliminate risk business owners are compelled to hire tax experts, bookkeepers or CPAs.  

There are tons of small and huge tax deductions in play for small and large businesses alike. Below mentioned are the 7 common and major tax deductions. 

Top 7 Tax Deductions:

1. Home Office Expense  

Home office expense is a major expenditure and a primary one. It is one of the most common small business deductions. This expense can be calculated using two state-approved methods: 

    • The standard option; this requires you to calculate the percentage of your home space being used for business versus personal use. You then apply that percentage to your other qualifying expenses like mortgage, utilities, and insurance. To do this, detailed records must be kept on all relevant expenses. 
    • The simplified option; it needs you to take a standardized amount of say $5 per square foot of home office space and multiply that to a specific square foot of area being using for office work. Hence, home office deduction is calculated. The standardized amount varies with time and according to the state rules.  
2. Insurance Premiums 

Insurance deductions can include the following depending on certain attributes of the business: 

    • Property coverage for office equipment like furniture, equipment, and other major items like the building itself 
    • Liability handling   
    • Auto insurance which includes business vehicles 
    • Health insurance for employees; Group health, dental and vision  
    • Owners’ professional liability or malpractice insurance
    • Workers’ compensation coverage 
    • Life insurance that covers employees
3. Advertising and Promotion 

Reasonable amounts of expenses that are used for marketing and promotion of the business are definitely deductible. These costs include things like: 

    • Hiring a graphics person to design your business logo 
    • The cost print publications like business cards or brochures 
    • Purchasing ad spaces in print or electronic media 
    • Sending printing or digital greeting cards to clients/ other stakeholders 
    • Investing in a new website and its maintenance  
    • Running a promotional social media marketing campaign 
    • Sponsoring branding and other event 
4. Rent Expenses 

This deduction is conditional to if a location is rented by a business for their day-to-day operations or equipment. You can deduct the payments made as rental expense for the business. 

What needs to be taken into consideration is that rent paid on your home should not be deducted as a business expense even if a home office is in place. That rent will be deducted as a portion of the home office expenses. 

5. Utility Expenses 

These include all utilities that the business is using for its operations like telephone, internet, office supplies, refreshment, air conditioning etc. 

These services are deductible if they are integral to your business’s operation. 

 The thing to keep in mind is that if you use a landline at home you cannot deduct that cost, even if you use it solely for work. However, a way out is having a second, dedicated landline devoted to the business’s needs only, the cost of that line is deductible. The same conditions are to be followed for internet and other utilities. 

6. Travel Expenses 

For this expense to be deductible in tax, the trip needs to qualify as business travel. It has to be regular, essential, and away from your tax home; the city or area where your business operates. The trip needs to be a travel away from the tax home and should be longer than a normal day’s work. 

Deductible, approved business travel expenses are listed below: 

    • Travel by plane, train, bus, or car 
    • Parking and toll fees and tips 
    • Use of owner’s personal vehicle 
    • Meals and lodging 
    • Laundry and dry cleaning during the trip 
    • Business calls 
    • Shipping cost of baggage and sample or display materials etc. 

It is essential to keep a record of all costs and amounts incurred during the trip like, fuel along with documents supporting the return/departure etc for these expenses to qualify as deductible taxes.  

7. Bank Fees and Interests 

All business must have separate bank accounts and credit cards as this is always a good idea. Bank fees including annual or monthly service charges, transfer fees, or overdraft fees are all deductible. Merchant or transaction fees paid to a third-party payment processor can also be deducted. These include PayPal and Stripe. 

Fees related to personal bank accounts and credit cards are not deductible.  

The bottom-line is that private businesses and start-ups, both have their own perks as different types of working organizations when it comes to tax deductions. However, claiming them all is tricky and sometimes if one does not seek professional help they may be overpaying their taxes. It is always best to invest in a tax expert such as an online CPA for this purpose. CPAs not only help with accounting and tax related matters, they are also well equipped with good insight about businesses and their financial status and hence can provide with good financial advise. 

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Accounting, Bookkeeper, Bookkeping, cpa, Online CPA, Tax Deductions, Taxes

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