The sound of tax deductions itself can bring a smile to the face of a small-business owner. However, not every business owner is cognizant of the various deductions that they are eligible to take advantage of. Most of them miss out on their rightful gains simply because of a lack of knowledge or improper bookkeeping.
If you are one such small business owner who is keen to take full advantage of all the tax deductions you are entitled to claim, keep perusing the upcoming sections. Start-up costs, inventory, utilities, insurance, auto expense, office supplies, and many other tax deductions are available to small business owners. If you need more information, you can check the taxact pricing guideline and avail yourself of the advantage of appropriate tax deductions.
List of Various Tax Deductions for Small Businesses
We have created a list of various deductions that you can take advantage of if you are running a small-scale business, including S-corps, sole proprietorships, partnership firms, C-corps, or LLC for easy and quick understanding. Here is the list for you to skim through:
1. Inventory
In order to determine the cost of the goods sold, you must consider various other expenses. If your business is inventory-based and you manufacture products or purchase them to resell, you can claim the expense related to it as deductibles. Here are some costs that can be included in tax deductions:
- Storage costs
- Overheads of factory
- Labor costs
- Freight
- Cost of production
2. Insurance
Insurance is a common expense that various business undertakes to protect themselves from various risks. If you have health insurance (of the owner), business owner’s policy, or business continuation insurance, you can get a 100% tax deduction for the amount paid. Other forms of insurances like liability coverage, property insurance, auto insurance, malpractice insurance, etc., are also tax-deductible.
3. The Start-up Cost
Most readers would be wondering why this capital expenditure is included in the list of tax deductions, right? Well, IRS does consider start-up costs as a capital expense. However, you can amortize the expenses over the years and take advantage of the deduction. You can read the 535 publication of IRS to get a better idea about it.
4. Utilities
The utilities used for business are tax-deductible, and you can take full advantage of them. These expenses that can be used in this category are telephone and electricity bills, water bills, etc.
5. Property Rentals
Many businesses run on a rented property. Not many are aware that the amount they pay for rent is tax-deductible. Even if you are doing business from home, you can get certain tax deductions like insurance, utilities, mortgage interest, depreciation, and maintenance. However, you need to confer with the IRS to check your eligibility for such deductions.
6. Depreciation and Lease/Rent
Any equipment or machinery taken on the lease is 100% tax-deductible. Moreover, the depreciation on these equipment can also be claimed for deductions. Assets like computers, machinery, automobiles, etc., can help with tax deductions in the form of depreciation. Please check with IRS about the percentage of depreciation that is allowed on such assets.
7. Office Supplies
Every business requires office supplies, and these are pretty small expenses. However, you incur these costs in lieu of running a business, and therefore, you are entitled to get deductions on any amount you spend on office supplies. Expenses like staples, pens, papers, etc., can be included in office supplies expenses to claim tax deductions.
8. Auto Expenses
If you have purchased any vehicle to use in your business, then any amount you spend on repairs or maintenance of the automobile is tax-deductible. You must keep track of the usage to keep track of the miles, but if it is not possible, you can use the standard IRS mileage rate. Only the mileage related to the business work must be considered for tax deductions, and personal usage must be kept separate.
9. Travel Expense
Small-business owners who have to travel a lot to keep their business running are allowed to deduct their travel expenses from the taxes. There are certain placeholders for such expenses to be considered business travel expenses, which you must be aware of. E.g., your travel must be away from your tax home for more than one full workday.
10. Office Furniture
Small office furniture can also be considered for tax deductions since they are a type of office supply. You can get the benefit of the tax deduction for any amount you spend on office furniture.
11. Salary to the Employees
Any amount that you pay as a salary to your employees is entitled to a full tax deduction. It includes any bonuses or commissions paid. Please note such compensation paid to the owners, partners, or LLC members cannot be claimed as salary deductible.
12. Marketing and Advertising Expense
Many businesses thrive on account of marketing activities and advertising. Not many are aware that the expenses like billboards, yellow pages ads, etc., can be claimed as tax deductions. If all these expenses are related to the business, then you are eligible to get a deduction.
13. Bad Debt
Risk is an inclusive part of business, and however unfortunate bad debts are, they do happen. If you happen to have suffered a loss on account of bad debt, then you can claim it as tax-deduction. However, you need to prove to the IRS that such a bad debt was business-related and not personal bad debt.
Here are the examples of bad debts:
- Business load guarantees
- Loans to clients
- Credit sale to customers
Concluding Words
Tax deductions for small business is a legitimate way to help you keep your finances intact and enjoy the rightful earning. Hopefully, this article helps you take advantage of the various tax deductions that you are eligible for.
