Business Tax Deductions: Tax Write Off Savings
When it comes to business tax deductions and discussions of what constitutes an allowed tax write off, there is a lot to talk about. Many new small business owners, after putting time and effort into getting the business going, will get to the financial aspects, especially taxes. When they do, and if they are working with an experienced accounting or tax consultant, they are often surprised by the many legal business tax deductions they can take, and what constitutes a valid tax write off.
Examples of Business Tax Deductions
Depending on the type of business, from manufacturing to cleaning houses as a service, business tax deductions vary, but for most businesses these are examples of allowable deductions to income:
- Business structure or store rent is a tax write off that reduces income for taxes.
- Depreciation on purchased business structure.
- Mortgage interest paid on a business property.
- Insurance expenses.
- Depreciation on certain business equipment can be a valid tax write off.
- Costs of materials used in production of items for sale.
- Costs of office and other supplies used in the business.
- Cost of operation of business equipment or vehicles.
- Certain allowable costs of maintaining an office or business in the home.
- Expenses of marketing and advertising the business.
- Utilities, electricity, etc. for the business facility.
- Some expenses for business-related entertainment and travel.
- Costs for business startup, documents, licenses, permits, etc.
- Professional fees such as legal, accounting, and business consultants.
- Salaries, wages, and costs of employee benefits.
- Local taxes and business fees charged by government.
- Approved retirement plan contributions.
There are others, particularly those related to specialized business products and services.
Most of the listed business tax deductions or tax write offs are a direct dollar-for-dollar deduction against income equal to the amount spent. However, there are some business tax deductions that have leverage or in some way save more on taxes than actual out-of-pocket expense.
The Depreciation Tax Write Off
The depreciation deductioni can push a lot of deductible expense into the current tax year that was not actually money spent. An example would be a business building’s depreciation. The IRS allows the building’s value/cost to be depreciated over a 39-year lifespan. Assume a structure (land not included) has a value of $350,000. Simple straight-line depreciation would result from dividing that value by 39, which is $8,974, the yearly amount that can be deducted for depreciation.
Consider the benefit of this deduction, as you did not actually spend this money in the tax year, and you still got to deduct your mortgage interest. There are other depreciation methods, called accelerated depreciation, that allow moving more of the depreciable value into early tax years.
Business Tax Deductions for Some Retirement Plans
The IRS rules are complicated, so work with a tax professional. However, setting up an approved retirement plan for owners and employees can result in deductions for contributions made by the business to the plan. While this is actual money spent, the money in the plan accumulates interest tax free over its life until withdrawn in retirement. Then it is taxed at the current tax rate of the individual.
Everything here is simplified to give you an overview of the tax write off benefits and business tax deductions enjoyed by small business in this country.
i Depreciation FAQ – IRS.gov
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