Tax Deductions for Small Businesses
In a previous post, we discussed some common business tax deductions. This is a broad topic, so we would like to add some additional tax deductions used by most small businesses. At the outset, let us remind you that dealing with running your business and dealing with tax requirements is dividing your attention too much, and we strongly advise that you find and work with a quality tax accountant, who is familiar with business taxes and returns, but also familiar with your particular industry. They should be a part of your professional team and will save you money from better planning and use of deductions, but also by freeing up a portion of your time to spend on growing your business.
In this article we are addressing specifically business-related tax deductions. You may also have other tax-deductible expenses on your personal tax returns. Other common business tax deductions to keep in mind and to plan for are as follows:
- Telephone and Internet Charges—The amount spent on telephone and internet charges related to business is tax deductible. If only a portion of these charges relates to your business, you may only deduct that portion. For example, if 50% of your telephone and internet expenses are business related, then you can deduct 50% of the total cost of these services.
- Business Banking and Interest Charges—Monthly service fees on your business bank accounts are deductible as business expenses. If you have a business loan, you are also entitled to deduct interest charges on that loan.
- Depreciation—Deducting high-cost equipment such as automobiles or machinery over the usable lifetime of that item provides deductions in multiple years rather than just in the year of purchase, making this a practical method of tax deduction.
- Employee Expenses—Having employees means costs of employee benefits which are deductible for employers.
- Professional Expenses—Hiring or contracting with professionals like attorneys and accountants provides another deductible expense for businesses.
- Charitable Contributions—Charitable deductions, which provide benefits for the community are deductible for business enterprises.
- Child and Dependent Care—Owners of businesses who need to provide care for children or dependents while they are working is another common deduction for businesses.
- Energy Efficiency Expenses—Businesses who invest in improvements that increase energy efficiency, such as solar panels, etc. can deduct the cost of these improvements.
- Medical Expenses—Business owners who pay for their own health related insurances can deduct the premiums and medical expenses.
- Moving Expenses—If you are moving for business reasons and meet the distance requirement that your new job location is at least 50 miles farther from your former home than your old job location was from your previous home, then you are able to deduct the moving expenses.
- Retirement Contributions—Contributions to individual retirement accounts reduce your taxable income to the year. Total IRA contributions cannot exceed your total income for that year, nor can they exceed the maximum annual contribution levels that are allowable.
- Advertising and Promotion—Costs for advertising your business, including all digital, print, or other media, and including website design and maintenance are deductible expenses.
As mentioned, there are many deductible expenses for businesses. The variety of these expenses is greater for established business entities than for sole proprietorships, so we encourage all business owners to properly organize their business and set up qualifying entities.
We would also like to direct you to two related posts. The first one is “Common Business Tax Deductions” and the other one is “Frequently Misconstrued Business Deductions.” These posts include tax deduction information that is not included in this article, including categories such as Travel Expenses, Home Office, Entertainment, Education, and Startup Expenses.