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Tax Deductions for Small Business

Tax Deductions for Small Business

Also known as a tax write-off, it is an expense that you can remove from the taxable income. The idea is to lower your tax bills; however, such deductions need to meet the criteria of IRS tax deduction. 

This article explores a list of tax deductions that various small businesses can enjoy – sole proprietor, partnership or limited liability company. While some of the expenses are related to the direct operation of a business, others involve personal deductions that a business owner needs to know.

 

How to Stay on top of all deductions 

Knowing the deductions you qualify for might be hard for a small business owner. 

Throughout the year, various small business owners find it hard to keep track of relevant deductions which makes them struggle to piece things together at the end of the year. As expected, you will hardly remember the business lunch you sometimes had last year when trying to win a customer. Many people do not keep track of this, so they lose out on significant tax savings.

 

Tax Deductions for Small Business 

This section explores various tax deductions a small business owner can take advantage of

Advertising and Promotion 

It is possible to deduct the entire cost of advertising and promotion. As a result, keep track of the following:

  • Event sponsoring

  • Running a new website

  • Paying someone for the design of your business logo

  • The cost associated with printing business cards

  • Operating a social media marketing campaign

On the other hand, whatever you paid to influence legislation or sponsor a political campaign is not allowed for deduction.

 

Business Meals 

Uncle Sam allows for a 50% deduction of food and beverages. The following condition must be met for you to be eligible for deduction:

  • Such expense needs to be ordinary and necessary to the operation of the business.

  • You cannot deduct a lavish or sumptuous meal, no matter the circumstance

  • The meal needs to involve the business owner. 

For people who provide meals to employees, Uncle Sam allows for a 50% deduction of such. For meals you made available during picnics or parties for staff, you can deduct it completely.

Again, your success with the deduction is hinged on your ability to have detailed documentation for the trip and meal. In other words, the expense amount, location and date of the meal, alongside the business relationship with the party you dined with. One smart way to go about this is to record such information (meal purpose and item of discussion) behind the receipt.


Bank Fees

We hope you do not operate the same credit card or bank account for your business and personal needs. For accounts and credit card firms that levies a monthly or annual service charge, or other charges like transfer fees, overdraft fees, such can be deducted. Also, one can deduct transaction fees that go to a payment processor like Stripe.

On the other hand, deducting fees for your personal credit card or bank account is not allowed. 


Contract Labor 

Businesses that hire independent contractors or freelancers for any business needs can deduct such fees as part of their business expenses. 

Also, make sure to send all contractors or freelancers Form 1099-NEC by Jan of the following year if you paid them above $600 in a tax year.

 

Professional and Legal Fees

All legal and professional fees that directly impact the operation of your business can be deducted. As a result, you can deduct expenses you paid to your lawyer, accountant, tax preparer, bookkeepers, etc. 

For fees that include something personal in nature, only the part related to business can be deducted.


Education

You can deduct educational fees as long as it is necessary for business promotion and also helps boost your skill. Uncle Sam will generally decide if such class qualifies by considering if the exercise improves all the required skills essential to working in your present business. 

Here is a valid list of business expenses related to education:

  • Expenses for transporting yourself to classes

  • Classes essential to boost your skills

  • Webinars and seminars

  • Books specific to your field

  • Workshop to expand your skills

One needs to understand that an education that fits as a new career or educational expenses not in your present business field will not qualify for a business deduction. 


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