Managing a business, be it a small store or even an operation entirely from your home office, is not an easy endeavor, and taxes certainly don't make it any easier.
Luckily, many write-offs that you, as a business owner or independent contractor, can make use of to lighten their tax load.
Of course, we're talking about tax write-offs that you can apply your business for and declare certain expenses to lower your income tax bill. Making use of these tax deductions is a great way to free up some capital for your business, so strap in!
You can decrease your total taxable income by subtracting certain purchases and expenses from your taxable income. Write-offs are business expenses that can be claimed and deducted from your tax statements. To put it simply, you must submit your business's profit to the IRS. However, without approved expenses, any business owner could buy whatever personal items they wanted and "write it off" as business expenses.
To prevent fraud, the IRS has determined what is considered a business expense and what isn't. For example, If you purchase a car for your business because you travel for work regularly, that's probably a write-off. If you purchase a new RV to go camping on the weekends - you likely need help to write that off.
As a small business, you are entitled to deducting half of the qualified food and drink purchases you have made throughout the year. While for others, you can write off the total amount.
Entertaining clients (concert tickets, golf games, etc.): 0% deductible
Business meals with clients: 50% deductible (100% if purchased from a restaurant)
Office snacks and meals: 50% deductible (100% if purchased from a restaurant)
Company-wide party: 100% deductible
Meals & entertainment (included in compensation)*: 100% deductible
*This applies to restaurants which are defined as businesses that prepare food or beverage for immediate consumption either on or off their property.
However, to qualify, the meal in question needs to have a clear relation to your work, and you need to forward the right documentation informing things like:
This may seem a little strange at first but if you keep the receipt and a record of business-related meals, you can easily track and declare these meals.
Business-related travel is a standard and expensive occurrence, especially if you are an independent contractor. Luckily, these expenses, too, can be deducted.
Bench explains, "On a business trip, you can deduct 100% of the cost of travel to your destination, whether that's a plane, train, or bus ticket." And it doesn't just apply to transportation; hotel fees, car rentals, and even dry cleaning are also eligible for deduction.
To qualify as work-related, your travel needs to:
It's important to note that only temporary travel is considered tax-deductible. Indefinite travel cannot be written off (typically when your travel lasts longer than a year).
1. Travel by airplane, train, bus or car between your home and your business destination. (If you're provided with a ticket or riding free as a result of a frequent traveler or similar program, your cost is zero.)
2. Fares for taxis or other types of transportation between:
3. Shipping of baggage, and sample or display material between your regular and temporary work locations.
4. Using your car while at your business destination. You can deduct actual expenses, the standard mileage rate, and business-related tolls and parking fees. If you rent a car, you can deduct only the business-use portion for the expenses.
5. Lodging and non-entertainment-related meals.
6. Dry cleaning and laundry.
7. Business calls while on your business trip. (This includes business communications by fax machine or other communication devices.)
8. Tips you pay for services related to any of these expenses.
9. Other similar ordinary and necessary expenses related to your business travel. (These expenses might include transportation to and from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer.)
It's important to note that you'll need to explain why the travel was necessary for your business.
Did you know that as a freelancer or someone who runs a business from home, you can claim a "Standard deduction of $5 per square foot of home used for business (maximum 300 square feet)," according to the IRS?
That is not the only way you can decrease your income tax bill as a freelancer. You can also get things such as your mortgage or real estate taxes deducted as well.
However, to qualify for these deductions, you need to have an area of your home exclusively dedicated to your business. If you are working off the kitchen table, it won't apply.
Today, many small businesses run either partially or exclusively off the internet through apps or other professional platforms. So it only makes sense that you add expenses regarding your phone and internet provider which can be written off your tax bill.
However, there's a catch. If you are using your phone for business and personal affairs together, you can only deduct the percentage of the latter's expenses.
If only 40% of your internet use is spent on work, that is all you'll be able to deduct from your taxes.
Part of owning a small business or working as a freelancer is that you'll often find yourself being on the receiving end of a service.
After all, with a new business comes the demand for accounting, legal advice, bookkeeping, and the service fees that may all be deducted.
That includes accounting and bookkeeping software as well, along with any other qualified paid services you may have hired throughout the year.
As a small business owner, you can deduct your employees' salary, benefits, and even vacation pay from your income tax bill. There are only a few requirements for you to get these write-offs:
If you are someone who financially contributes to charity regularly, now is the time for your goodwill to be rewarded.
If your company is a sole proprietorship, LLC, or partnership, you can claim charity expenses on your tax form. Now, if your enterprise is a corporation, you can claim the same expenses on the corporate form instead.
Among the things that the IRS will recognize as proof of charity is "A bank record or a written communication from the qualified organization containing the name of the organization, the amount, and the date of the contribution."
This deduction also applies to the market value of any property you have donated, meaning that it doesn't just apply to money donations.
Opening up your first business is often an excellent call for education which can often be more of a hefty investment. Luckily, you can also deduct business-related education expenses from your tax form.
For this write-off to qualify, the course or workshop you're undertaking must serve the purpose of improving your skills and maintaining your professional expertise.
Among the educational expenses qualified for a deduction, we have:
Tax Deductions are an excellent way to save up on capital resources to invest back into your company, and the ones we listed are just a few of many opportunities you can capitalize on.
So, if you are looking for more ways to help your business by learning how to save money and invest it back with more significant effect, you should probably contact Small Business Mentor.
We offer services for small businesses, big and small, seeking to grow and thrive by providing mentorship on matters such as the one described in this article.