Come tax time; it can be confusing what deductions are allowable for your small business. This is why many small business owners will enlist the help of an accountant or certified tax professional in preparing their taxes. Tax deductions, or tax write-offs, are basic expenses that you can deduct from your taxable income for that year. You will pay less than if you hadn’t taken certain tax write-offs. This, in turn, will help lower your overall tax burden.
It is thus imperative that you make the most of your tax write-offs. So, let’s say, for example, that as a self-employed business owner, you make $75,000 in income throughout the year. Depending on your expenses, there may be tax write-offs up to $12,000 that you can take. You reduce your net self-employment income to $63,000 instead of $75,000. And you will consequently pay taxes on that lower amount. Now, that is an actual example, and there are other components of your taxes to consider, but claiming certain tax write-offs will help you reduce your tax liability.
7 Tax Write-Offs for Small Businesses
So what exactly can you deduct from your income? What tax are write-offs allowable? And what are some of the most common tax write-offs that small business owners have? Below are 7 of the more common tax write-offs allowed for small businesses.
1. Advertising and marketing
Marketing and advertising are a considerable part of your business. As such, the expenses associated with these are deductible. What type of expenses can you deduct? Under the marketing heading, you might list online purchases for ad space, printing costs associated with cards and brochures, the price of a graphic designer to create a logo, or the cost of a social media marketing campaign. Again, you want to know what types of things are considered legitimate tax write-offs for marketing and advertising for your business. If you are unsure, consult with a tax professional or accountant.
2. Business insurance
You likely have at least one type of business insurance you pay for. The premium is generally deductible. You can deduct different types of insurance, including liability, auto insurance for company vehicles, business interruption insurance, and malpractice insurance, among other styles.
3. Labor that you contract out
So, for example, let’s say that you hire a freelancer to help with graphic design. The money that you pay this particular individual is considered a tax write-off. Also, keep in mind that if you spend that contractor more than $600 during a given year, you will have to send them a 1099 form.
4. Home office expenses
If you run your business out of a home office, there are certain things that you are eligible to deduct from your income. There are a couple of different ways to go about doing this. You may use the standard method or the simplified method. You may want to talk to a professional about what might make the most sense for your company.
5. Legal fees
Even though such fees may not be directly involved with running your business per se, if they are associated with your company somehow, they may be deductible. For instance, if you pay a lawyer to help you negotiate a claim or case connected to your business, then part of those fees (if not all) may be deductible.
6. Internet expenses
Using the Internet is essential to running your business; this could be considered a tax write-off. You want to remember that only a percentage is deductible if you use the Internet for both personal and business purposes. This is where keeping accurate records will help you.
7. Travel expenses
If a trip is, in fact, for business, there are certain portions of that trip that can be used as tax write-offs. Among IRS-approved travel expenses are plane fare, parking fees, dry cleaning while on a business trip, lodging, and meals, among other allowable expenses.
Navigating your way through tax write-offs can be tricky if you are not versed in IRS requirements. Using a qualified tax professional or accountant to help you prepare your taxes and determine which write-offs are allowable is often the smart way.
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