Tax Deductions Every Small Business Owner Should Know
Whether you are a small business owner, entrepreneur, or freelancer, managing your finances is essential to maintaining cash flow and growing your business. Utilizing tax deductions is one of the best ways to cut costs and increase profitability. Mastering and using these deductions can substantially reduce your tax burden. The following are essential tax deductions every small business owner should know, summarized and curated by tax services and financial planning professional Charn Hansra.
Home Office Deduction: You may be eligible for a home office deduction if you operate your business from your house. To do so, the space they use for business must be exclusive and regular. The write-off is a part of your rent or mortgage, utilities, and maintenance expenses.
Business Meals: You can deduct 50% of the cost of your qualified business meal expenses, including those with clients, prospects, or employees. Make sure to document your meals, including the purpose of the meal and who was there, and keep receipts.
Office Supplies and Equipment: Ordinary office supplies, such as paper, pens, and printer ink, and larger equipment like computers and desks are fully deductible. Retain receipts and invoices for such purchases in support of your claims.
Travel Expenses: If you travel for business, you may deduct expenses like airfare, hotel, rental cars, and meals while you’re on the road. However, you can’t claim personal travel, so make sure to document your trips to demonstrate they were business-related.
Vehicle Expenses: You can deduct gas, maintenance, and insurance if you use your car for business. For this deduction, you can use either the standard mileage rate or actual expenses. Maintain a record of estimated business miles driven to corroborate your deduction.
Employee Salaries and Benefits: Wages paid to employees are deductible, as are benefits such as health insurance, retirement contributions, and bonuses. This also covers payments to freelancers or contractors, provided you file the appropriate tax forms — for example, Form 1099-NEC.
Professional Services: Business-related fees to accountants, lawyers, consultants, and other professionals are fully deductible. Examples include tax preparation and financial planning services.
Marketing and Advertising Costs: All the above business expenses, including website hosting, social media ads, flyers, and branded merchandise, that promote your business are deductible. These costs are crucial investments in your business expansion.
Interest on Business Loans: If you’ve borrowed funds to help start your business, the interest on that loan is tax-deductible. The same is true for business credit cards and lines of credit.
Depreciation: For larger purchases, such as machinery, vehicles, or office furniture, you can amortize the cost in increments over several years through depreciation. You could be eligible for Section 179, which lets you expense the entire cost in the year you bought it.
Education and Training: Any courses, seminars, and workshops that help you hone your skills or knowledge in your line of business are deductible. Subscriptions to trade publications and books of interest to an industry also qualify.
Health Insurance Premiums: Self-employed individuals can deduct the cost of health insurance premiums for themselves, their spouse, and dependents (Note: deductibility of premium expense is subject to minimum requirements). This deduction is significant because healthcare costs keep climbing.
Conclusion
Proper detail and scheming are required to take these deductions. Meticulously track all of your expenses and consult a tax pro to be sure you’re not only following regulations but also obtaining the most deductions possible.
That’s why at Charn Hansra, we ensure small business owners are compliant and take advantage of applicable tax planning and deductions. Let us show you how to minimize your tax bill and put more of your money to work in your business.