50 Tax Deductions for Small Business Owners.

Business profit tax: A small business is a great opportunity for you to get your feet wet in the world of entrepreneurship and begin building your resume.

Small businesses have many benefits— namely because they’re small.

They cost less to start, require less initial capital, and have smaller operating costs than larger enterprises.
However, there are also drawbacks to running a small business.

Because small businesses usually have fewer resources and employees, you’ll need to be even more resourceful when it comes to slashing expenses and streamlining operations.

One way you can achieve this is by taking advantage of tax deductions as a small business owner.
There are several tax benefits available as a business owner that aren’t available if you work as an employee — such as the ability to write off certain business expenses as well as other items associated with being self-employed. Keep reading for details on the top 50 Tax Deductions for Small Business Owners.

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50 Tax Deductions for Small Business Owners.

Business profit tax: If you’re the owner of a small business, you likely don’t take home quite as much cash at the end of the year as you might think. In addition to taxes on your profits, which are typically fairly high, you also have to pay self-employment tax on that profit. Fortunately, there are plenty of ways to reduce the amount of taxes you owe as a small business owner. Self-employment tax is a combined tax that covers both income tax and Social Security and Medicare taxes. The self-employment tax rate for most small business owners in 2019 is 20% of net earnings from self-employment up to $128, 400 combined with another 10.55% for Medicare. That translates into about 12.8% in total self-employment taxes for most small business owners, which is in addition to the regular income taxes they must pay on their profits.

Small Business Taxes: Deducting Taxable Income

Income from the sale of goods or services is subject to both income and self-employment taxes.

One way to reduce your taxable income is by taking deductions for the expenses associated with your business.

When you add deductions back into your taxable income, you reduce the amount of taxes you’re required to pay on that income.

Some of the most common deductions for small business owners include:

– Cost of goods sold: The COGS is the cost of the products or materials you buy to produce revenue.

If you’re a retailer, the COGS is the cost of the merchandise you buy.

If you’re a wholesaler or manufacturer, COGS is the cost of the raw materials or components that go into the finished goods. The COGs of most businesses represents the largest share of deductions.

– Utilities: Electricity and other utility bills are common deductions for businesses. If your business uses a lot of utilities, you may be able to take a deduction for a portion of those bills as a business expense.

– Insurance: Premiums for business-related insurance like workers’ compensation, liability coverage, and health and disability coverage are deductible.

Business profit tax

– Repairs and maintenance: If you have to make repairs or replace equipment in your business, you can deduct the costs as a business expense.

– Travel: If you have to travel for business purposes, you can deduct the costs of transportation, lodging, and related expenses.

– Repayment of loans: If you borrow money to finance a business investment, you can deduct the interest on the loan.

– Interest on business loans: If you borrow money to finance your business, you can deduct the interest on the loan.

– Bad debts and inventory losses: If a customer fails to pay for the goods or services you sell, the amount is considered a bad debt.

The profit you expected to earn from that sale but didn’t because the customer didn’t pay is taxable income.

Deducting Operating Costs

There are many operating costs that can be deducted from your taxable income. Some of the most common include:

– Insurance: If your business is unprofitable for a period of time, your insurance company may charge you a cancellation fee. These are usually deductible from taxable income.

– Interest: If you take out a loan to finance your business, you can deduct the interest from your taxable income.

– Repairs and maintenance: Any money you spend to make repairs or replace equipment in the business is deductible from taxable income.

– Salaries: If you pay yourself a salary, the amount is deductible from taxable income.

– Utilities: Electricity and other utility bills are common deductions for businesses.

Business profit tax

If your business uses a lot of utilities, you may be able to take a deduction for a portion of those bills as a business expense.

– Repayment of loans: If you borrow money to finance a business investment, you can deduct the interest on the loan.

– Bad debts and inventory losses: If a customer fails to pay for the goods or services you sell, the amount is considered a bad debt.

The profit you expected to earn from that sale but didn’t because the customer didn’t pay is taxable income.

Depreciation on Equipment and Buildings

Businesses that use long-term assets like buildings, industrial equipment, or vehicles can claim a deduction called depreciation.

The idea behind depreciation is that the equipment and buildings you use in your business lose value over time. You can write off part of the cost of the equipment once a year as a depreciation expense.

The IRS allows businesses to claim a special accelerated depreciation schedule for equipment.

You can write off a portion of the value of the equipment each year as a depreciation expense.

The amount you can write off will depend on the type of equipment and the depreciation method you use.

The same goes for buildings. Most businesses have to depreciate the value of buildings over the course of several years.

The amount you can write off will depend on the type of building, your depreciation method, and the length of time you’ve owned it.

Tax Deductions for Advertising

Advertising is another good way to reduce your taxable income.

You can deduct advertising expenses from your taxable income.

The IRS allows small businesses to deduct up to half of the money spent on advertising each year.

The amount you can deduct will depend on the type of ad you’re running, the media you’re using, and the length of time you’ve been advertising.

The IRS requires that you prove the amount of the deduction by keeping records of your advertising expenses.

You should include the dates the ads ran, the amount of the ad, and the name of the publication or radio or TV station where the ad appeared.

Tax Deductions for Travel and Mileage

If you travel for business, you can deduct the cost of travel as a business expense.

You can deduct the cost of any transportation you use while traveling as well as the cost of meals and lodging while you’re away from home.

You can also deduct the cost of tolls, parking fees, and other incidental expenses incurred while traveling for business.

You can also deduct the cost of driving between multiple locations as well as the cost of gasoline.

You can also deduct the cost of parking fees, car maintenance, and car insurance if you use your car for business travel.

Tax Deductions for Office Supplies and Computer Equipment

If you’re a small business owner, you likely work from home. You can deduct the cost of supplies like pens, paper, and cleaning supplies used in your business. You can also deduct the cost of furniture and equipment used in your home office or converted garage space. You can also deduct the cost of computer equipment used in your business. You can even deduct the cost of internet service if you run your business online. If you work from home, you can also deduct a portion of your home-related expenses like utility bills, rent or mortgage payments, maintenance, and repairs. You can also deduct the cost of insurance premiums, homeowner association fees, and interest on a home equity loan.

Business profit tax

Bottom Line

As a small business owner, it’s important to keep track of all your expenses, especially those related to advertising and travel. These are usually the easiest deductions to miss, but they can also provide the biggest tax savings when you do remember to claim them.