Are you trying to keep from paying too much in taxes? Read this article to learn important small business tax deduction secrets for your business.
Approximately 30 percent of small business owners believe they’re paying more than they should in annual income tax.
Are you part of this group? Do you want to make sure Uncle Sam isn’t taking more of your hard-earned money than he should? If so, start by making sure you’re taking advantage of all the tax deductions available to you.
Listed below are 10 small business tax deduction secrets you can use to save money on your annual tax bill.
What Are Tax Deductions?
Tax deductions lower an individual or a business’s tax liability. They do this by lowering that person’s (or business’s) total taxable income.
In most cases, deductions are expenses that the business or individual incurs throughout the year that they subtract from their gross income.
Top 10 Small Business Tax Deduction Secrets
There are lots of different tax deductions that small businesses can take advantage of to avoid overpaying. Here are 10 of the best ones you may be able to claim this upcoming tax season:
1. Self-Employment Tax
If you own your own small business, you can tax advantage of the self-employment tax deduction.
When you work for someone else, Social Security and Medicare taxes are automatically deducted from your wages. Your employer also pays additional taxes at the same rates as these. When you’re self-employed, you’re required to pay both the Social Security and Medicare taxes, and it’s also on you to match those payments.
The good news, though, is that you can deduct the equivalent of what an employer would pay when filing your taxes for the year.
2. Retirement Savings
As a small business owner, you can also deduct the cost of any retirement contributions you make to your employees’ retirement savings accounts. You can also deduct any contributions you make for yourself.
This helps to set your employees up for success later on in life, and it gives you (and your business) a nice tax break now.
3. Health Insurance
One of the biggest expenses for small business owners is the cost of health insurance.
Luckily, much of the costs associated with health insurance premiums can be deducted. This includes the amount you pay for yourself, your spouse, and any of your dependents. If you have employees, you can also deduct the cost of their health insurance plan.
If you’re self-employed, you can also deduct various medical expenses that you incur throughout the year, as long as you’ve itemized your deductions.
4. Other Insurance Premiums
In addition to deducting the cost of health insurance, you can deduct the cost of many other insurance premiums related to your business. This includes various types of business insurance, such as errors and omissions insurance and general liability insurance.
Keep in mind that, when you deduct the cost of these different insurance policies, you’ll need to deduct them separately from your health insurance deductions.
5. Vehicle-Related Expenses
Business owners can deduct all of the costs related to their vehicles, too, as long as the vehicles get used exclusively for the business. If you use your vehicle for both personal and business reasons, you can only deduct the costs associated with your business.
Some of the costs you can deduct include the cost of gas, the cost of repairs, insurance premiums, and lease payments.
If you drive a lot as part of your business, or if you’ve purchased or leased a car specifically for business purposes, there are a lot of deductions there that you can take advantage of to lower your total tax bill.
6. Advertising Costs
Many business owners don’t realize that they’re able to deduct the costs of advertising and promoting their businesses. These deductions include the cost of obvious advertisements such as commercials or newspaper ads, as well as the cost of printing business cards or swag related to your company.
You can even, within reason, deduct the cost of the time it took to create these products. For example, the time you and your team spent creating a logo or coming up with a design for a particular product. You can deduct costs associated with your website, too (hosting, design, maintenance, etc.), as it ultimately serves as a promotional tool.
7. Legal and Professional Fees
If you work with a team of professionals to help run your business (and if you don’t, you should), such as an accountant or lawyer, you can deduct their fees from your yearly taxes.
In addition to these obvious professional fees, you can also deduct costs that you incur from working with consultants, insurance brokers, and HR personnel.
8. Home Office Costs
Those who run their small business from home and have a dedicated home office can take advantage of a home office deduction.
This deduction allows you to subtract costs associated with having an office in your home from your gross income. This includes a certain amount for the office space itself, plus a portion of your utility and internet bills.
9. Interest and Payment Processing Fees
If you’ve used a personal credit card or personal loan to finance part of your business, you can deduct the interest you’ve paid on that credit card or loan from your tax bill.
You can deduct payment processing fees that you’ve incurred throughout the year as well. This includes the fees you may have wracked up using services like PayPal.
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10. Startup Costs
Finally, one of the most important small business tax tips you ought to keep in mind is the fact that you can deduct many of your business’s startup costs. This is why you need to start keeping accurate records right away, even before your business is up and running.
Some of the costs you can deduct include the cost of travel, the cost of working with a consultant, and professional fees (including the fees you have to pay to register your business).
As you can see, there are lots of small business tax deduction secrets that you can use to your advantage this year and for years to come. You may even want to go back and apply them to your past tax filings to see if you can get a larger refund.
Do you want to learn more about small business taxes and small business finances in general? If so, visit the Business section of our site today for some additional resources.