If you're an entrepreneur, it's essential to know what business deductions are available to you. While many small business owners focus on saving money, tax deductions are one of the most overlooked ways to lower your overall tax liability. At Green Valley Tax Services, we can help you with a strategy to give you as an owner that edge. we have worked with businesses to help achieve success for 30+ years.
The goal of any business is to make money by providing a quality service or product. Part of the ways to ensure you are running efficiently is to take advantage of the many tax deductions available to Small to Mid-size Enterprises (SMEs), including those running a business out of their side rooms and garages. Here is a comprehensive list of the top 15 deductions you should consider.
1 - Qualified Business Income
Under the new 2018 tax reform changes, most small businesses can deduct 20% of their income from their taxes. This means that if you earn $100,000 in profit from your small business and have no other expenses (besides basic costs like rent or office supplies), then 20% of that profit will be taxed at the marginal rate instead of the top rate—which could save you thousands of dollars in savings each year. Keep in mind that once you hit roughly $157,500 in gross income, you are out of this deduction.
2 - Home Office
To claim a home office deduction, you must use part of your home exclusively and regularly as the principal place of business for the trade or business where you earn your income. If you have one, this means that if your primary work location is not in a separate room in your house (like a converted garage or attic), then it will be considered a home office for tax purposes.
Most SMEs will claim $5 for every square foot of the used home office at a maximum of 300 square feet.
3 - Rent
If you're renting an office or other space for your business, the rent is a business expense. The same goes if you own a home and use part of it solely and exclusively for your business. In that case, the portion of the mortgage interest is also tax deductible.
4 - Advertising & Marketing
Advertising and marketing include the costs of buying, printing, and distributing all forms of communication that advertise your business. Calculating the deduction is easy. You’ll just need to add up all expenses related to advertising and marketing over the course of 12 months—including materials such as paper production costs, postage fees associated with mailing flyers out or posters overseas, etc.
5 - Office Supplies & Expenses
Office supplies and expenses are tax-deductible as long as they're related to your business. This includes computers, software, or even a new smartphone as long as it is used for your business operations.
6 - Utilities
If you own a home or work from home, you'll want to know about this deduction. You can deduct the cost of utilities such as electricity, gas, heating and cooling, water, and sewer service (if not included in rent), trash removal service (if not included in rent), and telephone services made necessary by your business activity, and internet access.
7 - Repairs
If you've got a small business, it's important to know that repairs are deductible. Repairs are expenses made to restore the property to its original condition or better. They must be made to preserve the life of your business assets and allow them to continue being used in your business.
8 - Car
If you use your car for business, there are plenty of ways to take advantage of that situation. You have two pathways to go for car expenses. The first is to take the standard mileage rate deduction, which relates to the total business mileage you drove in the year. Or you can take the car-related expenses deductions, which calculate repairs, gas, tune-ups, insurance, etc. this treatment must also have mileage. All car expenses whether you use mileage or actual expenses require business miles and other miles to declare any car expenses.
9 - Travel
You can deduct travel expenses for business only. Travel expenses include the cost of transportation, lodging, meals, and entertainment. These costs must be directly related to your business activity to be deductible. For example, you can deduct airfare, hotel, taxi rides, meals, entertainment, parking fees, and more.
10 - Meals
As of this writing, a small business can deduct 50% of the costs for business lunches, but not for entertainment expenses. If you host a company picnic, all of those meals are deductible. If you take your wife to see Garth Brooks, that is not.
11 - Salaries and Employee Benefits
If you are an employer, there are several things you can deduct. Salaries and employee benefits are two of the most common deductions for small business owners. There are also education assistance, retirement plans, freelancers, and plenty of others.
12 - Taxes
The bad news is you cannot expense federal income taxes. However, you can deduct your payroll taxes, up to $10,000 of state and local income taxes, sales taxes, real estate, excise, and others.
13 - Insurance
Insurance is a deductible expense. This could include the liability of your business against fire or even medical insurance for all your employees. There are even business owner policies that are fully deductible.
14 - Legal and Professional Fees
Legal and professional fees are expenses you can deduct if you have to pay someone for advice, services, or representation. Examples include legal fees for any court cases you may be involved in, accounting fees, and audit fees that your business incurs as part of its operations. You can also deduct tax preparation fees and consulting costs related to your small business.
15 - Debt Interest
If you're running a business and have loans from the bank, from your own business, from friends or family members (must have a proper loan), and even mortgages on property used in your business— interest on loans are all deductible. The only exception is debt, which is not tax-deductible for any purpose.
Finding Help for the Details
Being a small business owner can be expensive, especially if you're a sole proprietor or LLC and don't have employees. But there are plenty of tax deductions that can help reduce the amount of tax you pay.
Taxes are a necessary evil—but they're also one of the most significant expenses in starting and maintaining your business. So, if you do it right, taxes can save you lots of money by reducing your taxable income. Business owners need to rethink the Self-employment tax (Social security) it is very important and can lead to a very important retirement plan this tax is important to you as the money paid is yours when you retire.
As a small business owner, it’s important that you know which expenses can be deducted from your taxes. This will help you minimize your tax liability and get back more of the money you earn for yourself and your business. If you have any questions about whether or not an expense is deductible, consult with a professional accountant before making any decisions.
At Green Valley Tax Service, we have experienced professionals who have worked with SME clients for years. We stay updated on the latest changes to the tax code and can help you navigate the best deductions for your business operations. Schedule a call with our team today, and let’s find a way to lower your tax obligation this year.