Often referred to as “write-offs,” tax deductions are expenses your company does not have to claim as taxable income, thus resulting in less money owed to the government. In simple terms, if a company makes $1,000, a percentage of that is given to the state in taxes. If $500 of that income is spent on a tax-deductible expense, then the percentage given to the state will be of the remaining $500. Meaning the first $500 was made and spent, legally, without needing to give a cut to Uncle Sam.
One doesn’t need to be pursuing a career in taxation in order to benefit from having a firm grasp on legalities surrounding taxes, and small businesses without official accounting personnel need to understand deductions, in order to help save a lot of money, come tax season. Deductions shouldn’t be determined at the end of the year in a “what did we spend on what?” sense, but rather on a continuous schedule with an ongoing list of deductions that can then be referenced when it’s tax time. Forgetting an expense that would have otherwise been a deduction simply means money that is legally yours is being sent to the government simply due to bad recordkeeping habits.
While this list is not exhaustive, it does include 6 deductions that almost any small business could qualify for and should utilize every year.
One of the few positives that came from the COVID-19 pandemic was a realization that remote work teams can be very successful. If you, too, realized that you can be very productive from home, be sure to look into your state’s rules on home office deductions. A percentage of your rent each month can be a write-off, and thus not taxable income. Your whole rent won’t qualify, no matter where you live, but if you have a large office that takes up half of your home, then half of your rent sure might!
If you’re starting to think, “these are just everyday things,” you’d be right, and that’s the point! There are so many minor expenses that small businesses do not claim, ultimately costing them a lot of money once things add up. When they’re working late, meals for your team are deductible, coffee with a potential client that you pay for is deductible, and so forth. Keep a running tab of all your minor expenses related to food, as they will add up very quickly. Here are some apps to help.
Advertising is 100% deductible, and even if your business is just a side hustle, things like those $20 Facebook boosts, or even just printing business cards are all deductible expenses that can be labeled as advertising costs. Any penny spent on getting your name out there should be documented and will be 100% tax-free.
Suppose you have a vehicle solely for work, such as a maintenance truck or a delivery scooter. In that case, every penny you put into that, from gas to maintenance is eligible as a deductible expense. Still, even if you use your everyday car to do business things, each of these trips can be documented and deducted. Even if you drive 12 hours to see grandma and happen to make some sort of sale on the way, part of the costs of that trip can be written off as a business expense and should be.
Whether a sole proprietor or the head of a small team, any money spent on making yourself and your colleagues more mentally prepared to take on their jobs can be fully written off as well. This can mean college classes, seminars, or even just subscriptions to scholarly journals in your field. When conducting your tax planning strategy, be sure to consider any and all means of education as write-offs.
Any legitimate loan related to your business (e.g., through a bank with you listed as the debtor) means interest, but those interest payments are also 100% deductible. Things get a bit wishy-washy when personal loans are less official, such as from an Uncle or something, and it’s best to discuss lowering your interest rate with said Uncle, rather than trying to write it off in an official, legal capacity.
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Again, this list is not nearly exhaustive, and any list about deductions could be 300 pages long. In a nutshell, really think about every penny you spend, even if it’s 99% for personal use, and 1% for business use (phone, for example). Look into the regulations regarding that object or service to see if you can write it off. You’ll save your company a lot of money!
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