There are a number of tax deductions that are available to small businesses. Here are some of the best ones:
1. Business Use of Your Car
If you use your car for business purposes, you can deduct the cost of driving it. This includes the cost of gas, repairs, and depreciation.
2. Home Office Deduction
If you use a portion of your home exclusively for business purposes, you can deduct the cost of that space. This includes the cost of rent, mortgage interest, property taxes, and utilities.
3. Equipment and Supplies
You can deduct the cost of any equipment or supplies that are used exclusively for business purposes. This includes computers, office furniture, and printer ink.
4. Cell Phone Usage
If your cell phone is used for business purposes, you can deduct the cost of that phone. But this deduction may be subject to limitations if you do not have a separate line or contract specifically for business use.
5. Travel Expenses
If you conduct business out of town, travel expenses are deductible as long as your trip meets certain requirements (i.e., it is overnight, at least 50 miles away). Travel costs include transportation, lodging, meals, and tips. If you take public transportation instead of driving yourself, you can even write off part of that expense.
6. Research and Experimentation Costs
You can deduct research and development costs based on the nature of the project (i.e., new products, processes, or software). This deduction is available to all businesses, regardless of size.
7. Advertising Costs
You can deduct the cost of advertising your business, including both online and offline campaigns.
8. Training Costs
If you send employees to training seminars or workshops, you can deduct the cost of that training. The training must be related to their job duties and it must take place outside of regular work hours.
9. Insurance Costs
You can deduct the cost of business insurance premiums, including health, property, and liability insurance.
10. Professional Fees
Any professional fees that are related to your business are deductible. This includes accounting fees, legal fees, and marketing costs.
11. Employee Wages
If you hire employees, you can deduct both their salaries and benefits. These deductions are only available if the employees are treated as full-time regular employees.
12. Bad Debt Deduction
If your business makes a payment on account for goods or services that will never be used (i.e., bad debt), you can deduct this expense at year-end. The deduction must be supported by adequate records and documents that substantiate the nonpayment of the debt, which includes the vendor’s name, date, the amount paid the reason for nonpayment, etc.
13. Safety Stock Costs (Retailers Only)
If your store is subject to the inventory rule (i.e. average cost method), food purchased for resale is deductible at the lower cost or market value. The “cost” for this purpose includes the actual cost of the food, plus any applicable taxes and transportation costs.
14. Home-based Businesses
If your business is based out of your home, you can deduct a number of expenses that are related to that business. This includes the cost of using your home for business purposes (i.e., rent, mortgage interest, property taxes), as well as a percentage of your utility bills and other household expenses.
There are a number of different tax deductions that are available to small businesses. By taking advantage of these deductions, you can reduce your taxable income and save money on your taxes. Contact an accountant or tax attorney to learn more about qualifying for these deductions.
It’s that time of year again when it seems you never have enough hours in the day, and tax planning can feel like one more burdens on your already full schedule. While finding some extra hours in your day is indeed a priority, so too are tax savings! The cost of doing nothing is often much greater than the time required planning ahead for next year’s taxes…
According to Aron Govil as with last year, there are two main forms of business income: C corporation income taxed at the corporate level and pass-through entity income (e.g., S corporation and partnership income) that is taxed once at the individual level (regardless of whether or not distributions were made to owners).
The tax treatment of a C corporation’s ordinary income and capital gains has changed significantly under the new law. The changes include:
- A flat corporate rate of 21% on all types of corporate income, replacing the previous graduated rates as well as the corporate alternative minimum tax.
- A maximum effective federal income tax rate on qualified dividends and long-term capital gains for individuals of no more than 23.8% (including the 3.8% net investment income tax), down from a maximum rate of 39.6%.
Conclusion by Aron Govil:
If you are able to do so, it would be prudent to consider converting your “C” corporation’s income into “S” corporation income before the end of 2016. If not, carefully monitor new tax reform developments during 2017 and 2018 to evaluate whether a conversion from a C corporation to an S corporation makes sense in light of proposed changes included in tax reform proposals.