Grabbing All of Your Small Business Tax Advantages

Small business tax advantages usually are not the first things new entrepreneurs think about. When COVID forced many workers to work from home, it sparked interest by many to go out on their own and start a business. It could be a brick and mortar store or an at-home freelancing gig. Whatever you may be thinking about as a possible business, it is a great decision because of the amazing small business tax advantages available.

When you work for someone else, your wages or salary are subject to IRS withholding rules, and there is little or nothing you can do to lessen your income tax burden. The moment you start a business of your own, you have a great deal of control over your income, expenses, and some control over your business and personal income tax burden. This overview does not cover all the advantages, as some are business type dependent, however most of these are available to just about every business.

  • Advertising and Promotion – You decide how to go to market with your business, how to advertise and promote it, and how much to spend doing so. You get to deduct all appropriate expenses from income before taxes.
  • Business Meals – When you take clients out to eat for business purposes, if it is to a restaurant, as of 2021 the cost of the meal is deductible. It can be fun and build relationships, but business must be discussed and the main purpose.
  • Business Insurance – There are different insurance needs for different businesses, almost always fully deductible. They can include insurance for:
    • Casualty – insure the premises and contents for damage or destruction.
    • Liability – the business may need to insure against claims for damages suffered by customers or employees.
    • Specialty insurance – this can cover product liability or other activities of the business.
  • Interest and bank fees – Interest paid an all business debt is deductible as well as bank fees charged on business accounts.
  • Vehicle expenses –This includes even the use of your personal vehicle for business purposes. You can take the deduction for actual expenses or the mileage deduction, for 2021 it is $0.56 per mile.
  • Wages, salaries, and benefits – If you have employees, you can deduct the wages and salaries you pay them as well as the cost of benefits you provide.
  • Subcontracted work – Using subcontractors instead of employees, especially for one-off projects is growing in popularity. You can deduct from income all the related costs.
  • Depreciation – The rules are complicated but well worth it for taking depreciation as a deduction. For buildings or expensive equipment, you normally do not deduct the cost in the year purchased, instead you depreciate the value out over time.
  • Home office – This deduction is not used as much as it should be. If you conduct your business completely from your home or it is your main business location, you can deduct a portion of the costs of maintaining the home, including utilities, depreciation, repairs, and maintenance. The rules are complicated, so consult your tax advisor.
  • Legal and professional fees – All fees for legal advice, accounting, and consulting for your business are deductible.
  • Rent or mortgage interest – If you rent your business space, you can deduct the rent payments. If you buy it, you not only can depreciate it, but you can also deduct the mortgage interest.
  • Communications expenses – Telephone, Internet, and other business expenses like radios are deductible. Ongoing fees for Internet services are as well.
  • Business travel – If you travel for business, you can deduct the airfare, vehicle expenses, hotel, and other expenses. If you mix business and pleasure travel, you must apportion the expenses.
  • Retirement accounts – You can set up IRS qualified retirement accounts for your employees and for owners under some conditions. The money contributed to the accounts by the business can be deductible.

There is more, but you get the point. Starting your own business can bring some great small business tax advantages.

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