Deductible business expenses help businesspersons with many of the costs of running a company. Business owners know that most expenses can be written off, although there are some limits and timing issues. So what are the most common tax deductions for small business?
The IRS allows business deductions for general and essential business expenses. Current expenses are needed to keep the corporation running, and these expenses are fully tax-deductible. You can include capital expenses such as investments and real estate for the tax deductions if they are purchased to generate income for the business.
When you’re totaling up your business’s expenses at the end of the year, don’t overlook these ten important corporate tax deductions.
Most businesses use a vehicle, such as a car, light truck, or van. You can deduct the cost of operating these vehicles only if there are required records to prove business usage. In deducting these costs, the need to keep records of cost like gasoline, oil changes will be eliminated if you rely on the IRS standard mileage rate of 54.5 cents per mile in 2018 and 58 cents per mile in 2019. You can use the standard mileage rate whether you own or rent the vehicle.
Salaries and Wages
You can deduct the payments of staffs, including wages, salaries, bonuses, commissions, and taxable fringe benefits for the business. Employee benefits programs, such as retirement plan contributions are also considered as business expenses, and you can deduct them from your tax. However, payments to sole proprietors, partners, and LLC members are not considered as wages because these owners aren’t employees. So you can’t deduct these business expenses from your tax.
Professional Services Expenses
Bills paid for professional services such as tax preparation, legal services, bookkeeping and accounting services qualify for tax deductions. Fees paid for special services must be regular and necessary costs related to operating the business.
Insurance Expenses for Businesses
You can deduct the insurance expenses as Insurance premiums qualify for corporate tax deductions. Some examples of insurance premiums that are deductible from tax are:
- Fire insurance premiums
- Theft insurance premiums
- Legal insurance premiums
- Worker’s compensation insurance premiums
Business owners who operate a professional trade such as a certified public accountant, prosecutor, or doctor can deduct malpractice or errors and omissions insurance premiums from their taxes as well.
Travel Expenses for Business Purposes
When you travel for business, you can deduct your travel costs. For example the expenses of plane fare, costs of operating your car, taxis, lodging, meals, shipping business goods, cleaning clothes, telephone calls, faxes, and tips.
Are you planning to combine your business with pleasure? It’s okay, as long as the business is the main purpose of the tour. However, if you take your family with you, you only can deduct your own expenses.
A lot of small business owners have their offices at home. Unfortunately, many of them don’t realize they can subtract expenses related to their home office. These deductions include insurance, mortgage interest payments, repairs, and utilities like internet service.
You have to determine what portion of your home is being used as your business office. You can use the tax software to calculate the numbers. Both homeowners and renters can be benefited from this deduction.
Various kinds of business equipment expenses and property are tax-deductible. The IRS normally wants businesses to extend the deductible cost of business property out over time. To accomplish this, businesses may only withhold the depreciated amount of property in most cases.
For used or new personal business property placed in service September 2018 through December 31, 2023, 100% of the cost may be deducted in a single year through bonus depreciation. In later years, first-year bonus devaluation deduction amount goes down, as follows:
- 80% for property placed in service during 2024
- 60% for property placed in service during 2025
- 40% for property placed in service during 2026
- 20% for property placed in service during 2027
- 0% for property placed in service 2028 or later
If your business is a partnership company, or a limited liability company, or an S corporation, your company can make a charitable contribution and pass the deduction through your tax return. If you own a regular business, the company can deduct charitable contributions.
You can give away some of your old computers or office furniture to a school or charitable organization. This will not only create goodwill for your company but also increase the tax benefits. However; if the donated equipment has been fully written off, you can’t claim a tax deduction.
Advertising and Promotion
The cost of regular advertising and promotion of your goods or services are deductible from tax. Advertising costs like maintaining websites, business cards, yellow page ads, and so on is deductible as a business expense. Marketing expenses that create business goodwill like sponsoring a football team is also deductible as long as there is a clear association between the sponsorship and your business. For example, naming the team as “East-west Auto Parts Blues” or listing the business name in the program is proof of the promotion effort.
Employee Benefit Programs
The cost of employee benefit programs, such as education support and dependent care help, as well as donations to employees’ qualified retirement plan accounts, is deductible. For self-employed individuals, donations to their own qualified retirement plan accounts are also deductible from their tax.
This tax deduction guide simply discussed the ten most common expenses that almost all business owners can claim when filing their corporate tax return next year. Many business owners are unaware of what they are eligible for, and that is why they end up paying much more tax then they should at the end of each year.
Remember, this information is general, and if you want personalized guidance for your individual business, it’s best to contact a professional chartered accountant and get in touch with them as soon as possible to figure out how much money you can save in a year from the tax deduction.
Abdul Quddeus is a CPA, CGA, and founder of MAQ CPA Professional Corporation. He helps small business owners, professionals and individuals save their hard-earned money on taxes and let them free up their time to concentrate more on core business by providing tax planning and compliance, bookkeeping and accounting services, Corporate Tax Return in Toronto & Scarborough.