Are you doing enough to cut your tax burden down to size? If you’re overlooking certain tax write-offs, you may be incurring a bigger tax bill than necessary. Understand the deductions available to your small business and how to report them to reduce your taxable income.
What Is a Tax Write-Off?
A tax write-off (also referred to as a tax deduction) is any allowable deduction by the IRS to lower your taxable income. Basically, you subtract the amount of the expense from your taxable income. To meet the qualifications, an expense must be “necessary” and “appropriate” to the operation of the business.
What Are Some Common Tax Deductions for Small Businesses?
Tax write-offs typically fit into specific reporting categories, such as business travel, advertising or home office expenses. You may be able to deduct:
- Advertising and marketing expenses
- Legal and professional fees
- Business insurance costs
- Income taxes paid to state, local or foreign entities, as well as real estate, employment and sales taxes
- Bank fees and interest expenses on commercial loans or lines of credit (with limitations)
- Depreciation expense (up to an annual deductible amount) of certain assets, such as office equipment, furniture or a company-owned vehicle
- Expenses related to the business use of a vehicle, such as maintenance and gas
- Labor expenses, such as compensation paid to employees and contractor charges
- Office expenses, such as telephone, internet and utilities – in addition to rent for office space or expenses associated with a home office
- Business travel, meals and entertainment costs
- Health insurance costs
- Fees associated with conference attendance or educational seminars
What Expenses Are Not Tax-Deductible?
Of course, some business expenses do not qualify for tax write-offs. This includes:
- Legal costs to defend yourself if you've broken a law, or government fines or penalties
- Mileage related to your normal commute (only business travel outside daily travel is eligible for the standard mileage deduction)
- Personal expenses and activities (however, when expenses are split between personal and business use, the business-related costs can be deducted)
- Political contributions
How Do I Calculate Tax Write-Offs?
Accurate and ongoing recordkeeping is the key to claiming available business deductions and streamlining filing preparations. Familiarize yourself with the various deductions and set up a process to track these deductions throughout the year, whether manually or electronically.