Tax deductions are invaluable to small businesses, because the money they save is invested back to the business instead of going to the government. A number of expenditures can be written off, but it’s also a matter of knowing which ones.
A number of deductions are available for different entities. C corporations, S corporations, partnerships, and limited liability companies, or LLCs, can claim deductions at varying degrees based on a number of rules.
We’ve listed the most common tax deductions that can be claimed by small businesses.
Small businesses are likely to operate a service vehicle in its day-to-day operation. The cost of operating one is deductible. You can use the standard mileage cost, which is 58 cents per mile in 2019, to compute your deductible costs. You can also use the actual cost of operating your vehicle, provided you have the documents to prove its usage, according to the IRS.
If you’re using a portion of your house to conduct a business, that can be considered a deductibl expense. This type of deduction covers both direct costs, such as renovations on your home office, and indirect costs like rent or mortgage interests. The size of your deduction will be based on the amount of space devoted to your home office. Determining this can be tricky, so it’s best to leave it to a qualified tax preparer.
Rent, Utilities, Supplies
The cost of renting space for your business is fully deductible. The electricity for this facility and other utility costs, such as mobile phone charges and the cost of a landline, are deductible. Moreover, the cost of the items you need in your business like cleaning supplies can be deducted as well. Lastly, you can also deduct the cost of ordinary repairs and maintenance.
Salaries and Contract Labor
Employee payments, which include salaries, commissions, bonuses, and taxable fringe benefits, are deductible. This, however, does not apply to payments made to sole proprietors, partners, and LLC members as they are not considered employees. Those who employ independent contractors can also claim deductions for the cost of contact labor.
Moreover, employee benefits programs like education assistance and contributions to an employee’s retirement plan are deductible.
Taxes and Insurance
Real estate and personal property taxes are deductible, as well as employer taxes you pay on behalf of your employees, which include the employer share of Federal Insurance Contributions Act, Federal Unemployment Tax Act, and state unemployment taxes.
In terms of insurance, insurance premiums you pay for coverage on your business for accidents, theft, automobiles, and malpractice coverage, are all deductible. Please note, however, that some insurance types like life insurance are not deductible. When in doubt, it’s better to speak to a tax professional to avoid errors.
Expenses made on business trips, such as airfare, meals, and lodging, can be deducted, but only if they meets the requirements laid out in IRS Publication 463 like being away from your tax home longer than a day’s work.
Interest on Debts
Interest on loans taken by a business, such as a line of credit, is deductible as a business expense. There are limitations, however, such as those businesses with average annual gross receipts of over $26 million (in 2019) in the preceding three years, which are limited in the percentage that can be deducted.
Advertising and Marketing
Expenses on advertising and marketing materials necessary for small businesses to grow, but they can take a toll on one’s earnings. Thankfully, you can also deduct these expenses, including the cost of your new website, billboards, and business cards.
Legal and Professional Fees
Lawyer and accountant fees can be substantial at times, but thankfully, they can be written off. This gives you a good reason to hire professional tax pros instead of risking making a costly error in your tax returns.
Need help in your deductions?
Our Los Angeles accountants can help you determine which tax deductions are applicable to your business. Contact us today at 818-639-7478 or fill out our contact form to schedule a free consultation to get started.