Small business owners can take advantage of various tax deductions to reduce their taxable income and lower their tax bill. However, most SBOs fail to utilize more than a few basic ones.
By diving deeper into the topic of write-offs, you may identify a few easy options that you’ve yet to consider.
The Role of Tax Write-Offs for SBOs
Tax write-offs for business owners are expenses that can be deducted from the business’s taxable income, thereby reducing the amount of taxes owed to the government.
These write-offs include expenses that are directly related to the operation of the business, such as office rent, supplies, and employee salaries, as well as some personal expenses, such as a portion of the home used as a home office or a personal vehicle used for business purposes.
Tax write-offs are important for business owners because they can help reduce the amount of taxes they owe, which means they can keep more of their hard-earned money. By reducing the amount of taxable income, business owners can potentially save thousands of dollars in taxes each year.
However, it’s important for business owners to be very strategic with their tax write-offs. Claiming too many write-offs or claiming write-offs that are not valid can trigger an audit from the IRS, which can be a time-consuming and expensive process. It’s important for business owners to keep accurate records of all expenses and to consult with a tax professional to ensure they are claiming all valid write-offs and staying compliant with all tax laws and regulations.
The more strategic you are with tax write-offs, the better. You can improve your approach by keeping accurate records and being strict about separating out personal and business expenses. It’s also critical to know what expenses are deductible and to stay up to date with new rules and updates.
10 Write-Offs to Be Aware Of
It’s impossible to predict which tax write-offs you qualify for without knowing the details about your situation, but here are several write-offs to be aware of:
- Home Office Deduction
If you use part of your home exclusively for business purposes, you may be eligible for the home office deduction. This deduction allows you to deduct a portion of your home’s expenses – such as mortgage interest, property taxes, and utilities – as a business expense. To qualify, you must use the space exclusively for business purposes and it must meet certain other requirements.
- Business Vehicle Expenses
If you use your personal vehicle for business purposes, you can deduct the expenses related to the use of the vehicle, such as gas, oil changes, repairs, and maintenance. You can also deduct the cost of depreciation and interest on a car loan if you own the vehicle.
- Travel Expenses
If you travel for business purposes, you can deduct the expenses related to the trip, such as airfare, hotel accommodations, meals, and transportation. To qualify, the travel must be necessary and ordinary for your business.
- Office Equipment and Supplies
You can deduct the cost of office equipment and supplies, such as computers, printers, and office furniture, as a business expense. You can also deduct the cost of repairs and maintenance for these items.
- Professional Fees
You can deduct the cost of professional fees, such as legal and accounting fees, as a business expense. These fees may include fees for preparing tax returns, setting up a legal structure for your business, and other professional services related to your business.
- Advertising and Marketing Expenses
You can deduct the cost of advertising and marketing expenses, such as website development, print advertising, and social media advertising, as a business expense. These expenses must be directly related to promoting your business.
- Employee Wages and Benefits
You can deduct the cost of employee wages and benefits, such as health insurance, retirement plans, and other employee benefits, as a business expense. You can also deduct the cost of hiring temporary employees or independent contractors.
Depreciation is the process of deducting the cost of a long-term asset over its useful life. You can deduct the cost of depreciation for assets such as buildings, equipment, and vehicles as a business expense.
You can deduct the cost of rent for your business location as a business expense. This includes rent for a physical location, such as an office or retail space, as well as rent for equipment or other assets.
- Self-Employment Taxes
If you are self-employed, you are responsible for paying self-employment taxes, which include Medicare and Social Security taxes. You can deduct half of the self-employment taxes you pay as a business expense.
Maximize Your Earnings
As a business owner or entrepreneur, it’s not about how much money you make. It’s about how much money you get to keep. And with the right tax write-offs, you can increase your net income on an annual basis. Meet with your CPA or tax specialist to determine which write-offs you qualify for.