A List of Common Small Business Tax Deductions

June 30, 2021/ Posted in Credit Card Processing

Most company owners aim to learn as much as possible about lowering their taxable income. That way, they can reduce their tax liability. In this article, we will be discussing typical small business tax deductions and things you should understand about them. Since this is an efficient (and common) strategy to write off certain expenses legally, it comes in very handy for everyone operating a fairly small company. It will help you plan your future moves, projections, and budget correctly.

What Can a Small Business Write off on Taxes?

Now, let’s move onto the list of tax deductions for small business owners. If you use it and run your line of work by it, you will be able to prepare your tax return properly. The list is composed by relying on IRS data:

  • Expenses related to the vehicle used for company’s purposes,
  • Payments to employees, such as salaries and wages,
  • Costs for independent contractors and freelancers,
  • The cost of items and supplies used in a company,
  • Company’s utilities,
  • Various insurance policies,
  • Repairs and maintenance,
  • Commissions and fees,
  • Cost of transportation for business-related travel,
  • Meals that are provided within the company.

Explore this small business tax deductions checklist and act accordingly. As a savvy employer, you should run projections about writing off taxes to determine how much to pay in estimated quarterly taxes. That way, you can also determine whether to push some expenses into the next year or extend them throughout the ongoing one.

What Can You Write off on Taxes for an LLC?

As all businesses do, limited liability companies (LLCs) have the right to write-offs. The most common deductibles include:

  • Rental expense paid by a company,
  • Charitable donations,
  • Property purchased for the LLCs use,
  • Incomes made by sold goods (for manufacturing and reselling goods),
  • Payments made for professional licenses and development.

What Business Expenses Can I Deduct Without Receipts?

Whether you’re running a newly-established company or one that has a long tradition but less than 25 employees, you probably have all kinds of questions. For instance, you might be wondering about credit card processing fees or about the things you must know about termination fees. Still, when it is time to deal with taxes, all companies have some concerns.

Not having your receipts in one place and ready to be presented to the IRS isn’t something you will want to brag about. However, it doesn’t necessarily mean that you’re in trouble.

In fact, you will still be able to claim a deduction on your taxes without receipts for each transaction you’ve made. You’ll only need all receipts in case you’re audited. This can happen to you up to seven years after filing your taxes. Nevertheless, it’s best to play it safe and organize your documentation of every deduction you plan to take. And you should do it now rather than later. Don’t risk not having all your documents in line.

You can write off most things without keeping tabs, but it's still recommended to keep and organize all of your receipts and documents.

The Company Vehicle

Many businesses use a car, light truck, or van. You can decrease the expense of operating the vehicle for business-related purposes only if you have records to prove it. If you’re using your vehicle solely for work-related purposes, you can write off all charges connected to driving and maintaining it. If you use the car for both work and personal reasons, you can only subtract costs related to the business part by claiming the mileage for work-related driving.

You can reduce the necessity to keep track and evidence of some costs like gasoline or oil changes if you go by the standard mileage rate approved by the IRS each year. Whether you strive to decrease real expenses or apply the standard mileage rate, you still have to report how many miles you’ve driven and the purpose of the drive.

Cost of Transportation for Business-Related Travel

Different types of businesses have different scopes of work, niches to focus on, target crowds, and tasks employees must fulfill. Some jobs involve traveling for meetings or other activities. Every outlay related to traveling for work can be written off when the tax time comes. This includes flight tickets, hotels, rental cars, dry cleaning, food and refreshments, and more. You should check out the IRS website for a complete program of deductible business-related travel spendings. In order to fulfill all requirements, your journey should match these points:

  • It must be essential for your company;
  • You must be away from the city or area in which your company operates;
  • You must be traveling away for longer than a typical workday;
  • It must require you to spend a night or rest along the route.

If your journey fulfills these requirements, you can lower some of the expenditures that await.

Reduce your yearly spendings by deducting taxes related to your company car and travel.

Employment Costs: Salaries and Wages

When you’re reimbursing the employees, it counts as deductible expenditures. This covers salaries, wages, gifts, bonuses, commissions, and taxable margin benefits. However, payments made to sole proprietors, associates, and LLC members do not count as wages because they aren’t employees. However, if the owner of a C corporation or S corporation performs more than minor services, they can be appointed as an employee and have a salary. In addition to this, the salary must be reasonable and necessary, and the services assigned to the employee must be provided.

Expenses When Hiring Independent Contractors and Freelancers

Numerous employers choose to hire freelancers or independent contractors to reach their goals and boost their progress. The cost of these types of contract workers is deductible. You would need to provide Form 1099-MISC to every contractor getting $600 or more from you over a one-year period. If you pay the contractor using a credit card or PayPal (or one of PayPal alternatives), it’s up to the processor to issue the independent contractors Form 1099-K. If that is the way you chose, make sure to understand credit card transaction fees.

Hiring independent contractors and freelancers can help you save up.

Company Utilities

Company utilities are an important part of a small business expenses list. They are unavoidable. However, as soon as you discover that you can fully deduct electricity for your facility, things will start to look up. Other service costs include your cell phone charges, WiFi, and data.

If the daily usage of the phone and internet is indispensable for you to run your company, you can subtract these expenses. However, if you use your phone and internet for personal reasons too, you are only allowed to write off the portion of the bill that goes toward your work.

Company utility payments can be deducted.

Office Supplies and Items

When we think about office supplies, the first things that pop into our heads are traditional items, like pens, staplers, and paper clips. The company’s needs and requirements dictate precisely what will be on this list.

The expense of every item used in a small company and postage are fully deductible expenses. For instance, you will be required to pay for cleaning supplies if you are running a cleaning service. As for tech companies, they must provide adequate equipment to their staff.

Not planning the minor troubles that could add to the overall expense is one of the most common mistakes company owners make. Check thoroughly what your firm’s needs are, get it timely, and prepare for a deduction.

Home Office

Many brilliant small company ideas go hand in hand with establishing a home office. Businesses that have embraced this type of work save up significantly. But that’s only one of the major perks they experience. Setting up a home office also qualifies as deductible.

In order to claim it, these firms must use the home regularly and particularly as their primary workplace. It should also be a place to have meetings and deal with clients and customers. If you are eligible for this, you can deduct immediate costs like redesigning or painting your home office. You can deduct indirect costs as a percentage of rent or mortgage interest and real estate taxes that reflect the percentage of business usage of the house or apartment.

Setting up a home office is an excellent way to save money.

Company Insurance Policies

Lowering taxes based on the payments for your company’s insurance policy, violation coverage, flood insurance on company premises, cyber liability coverage, and business succession insurance can all be deducted. If you’ve established a home office or put to use a part of your home to manage the company, you can deduct your renter’s insurance as an element of your home office write-offs.

Tax Deduction on Health Insurance

If you’re wondering about tax deduction related to health insurance coverage, there are two rules you must keep in mind. A small company can qualify to claim a tax credit for up to 50% of the employees’ premiums. However, the expense of health coverage for self-employed individuals is not a business deduction. Instead, insurance premiums are subtracted from the owner’s return.

You can save up by deducting charges connected to company insurance and healthcare policies.

Meals Provided Within or by the Company

You can deduct business expenses that are connected to catering meals to employees by up to 50%. Although entirely deductible meals exist, most companies get one-half of it. This means that you will pay for one-half of a business lunch while the other half of the bill comes free of charge. You can only claim it if you verify that all payments you made were only for company purposes.

In addition to this, did you ever stop to think that having fun can simultaneously pay off – in terms of taxes? If you take your clients out, you can deduct the expense as long as you discuss work-related matters during the gathering. The event should take place in a company setting for work-related purposes. By doing so, you can deduct 50% of the cost of these entertainment investments. Moreover, you can deduct as much as 100% of the expenditures of social events you organize or host for employees.

Organizing social events and company meals is another way to minimize some of your expenses.

Commissions and Fees

Commissions and fees company owners pay are entirely deductible. If you want a deduction, you might be expected to report costs on the form released each year by the IRS. Commissions connected with purchasing real estate aren’t deductible.

LLCs can also get to save up on some deductibles.

Use Credit Card Processing to Save Up Additionally

If you ever wondered how most successful businesses manage to thrive, it’s all about balancing between expenditures and incomes and doing it right. If you choose to accept credit card payments, you will have the opportunity to implement one of the best ways to save some more.

  • There are many processing providers out there. Choose the one that suits you. Consider the number of credit cards you will process, the types of cards, and the ways to accept them.
  • Set up a merchant account (but first, learn more about what a merchant account is).
  • Learn about merchant services rates.
  • Set up your payment terminals.

Lastly, if you’re running an eCommerce business, you should review all innovations and explore all options regularly to keep things fresh and satisfying for your customers.

Consider accepting credit card payments and processing them properly to enhance your savings plan.

Get Ready for Small Business Tax Deductions

Once you learn all about how a small business pays taxes, you’re good to go. You can reduce any debt with proper organization and knowledge. More importantly, each step toward success will impact your income positively and enlarge it. That is why you should consider these ten principal deductions and strive to make the most of them. And if you’re wondering about the rest of the list, make sure to check out the IRS website and see what other perks you can obtain.