It is a fact that tax issues are complex, especially for small businesses. It is something that many business owners wish to avoid as much as they can. Unfortunately, avoiding taxation is a recipe for trouble as far as your small business is concerned. Most business owners tend to focus more on increasing sales, improving customer experience, and creating better marketing strategies, among others. But not paying enough attention to your taxes can spell doom for your business.
According to Lantern by SoFi,” small business tax deductions (or write-offs) are business-related expenses that you can subtract from your taxable income.” To avoid trouble with IRS officials, you need to be aware of the small business tax deductions you are eligible for. You will definitely not want to miss out on deductions that have the potential of saving your business thousands of dollars or, worse still, put you in trouble with the IRS.
Here are 6 common small business tax deductions:
1. Qualified business income
In 2018, the tax law reform changed how deductions operate for most people in the tax bracket including small businesses. According to the new tax law, small businesses such as LLCs, sole proprietorships, partnerships, and S corporations are supposed to deduct 20% of their income as tax. For example, if you have a small business that earned a profit of $100,000 in the previous year, you are supposed to deduct $20,000 prior to the application of the income tax rates.
2. Home office
If you have converted an extra room in your apartment or house into a home office, then you have a reason to celebrate. It means you can subtract the business expenses of your home such as insurance, mortgage interest, depreciation, and repairs. In other words, small business owners are allowed to deduct at least $5 for every square foot within your home office to a maximum of 300 square feet. Nonetheless, IRS will only allow you to claim the deduction if you regularly use your home office for business purposes.
3. Advertising and marketing
If your business involves aggressive marketing techniques such as handing over business cards to everyone you come across, then you are lucky. Under the new tax law, you have a right to deduct all the expenses of printing the business cards on your tax returns. Generally, any money you spend on promoting your business and attracting new customers is 100 percent deductible.
4. Office supplies and expenses
It doesn’t matter what type of business you operate; you will definitely have to purchase new office supplies from time to time. This includes things such as pens, printer ink, notebooks, among others. You are allowed to deduct all the expenses for these items.
With the cost of rent often increasing, it will be great to get some kind of a break. The cost of renting an office space is fully deductible regardless of whether it is an office in a business complex or a storefront in a busy street.
Any utility expense for your business such as phone, internet, water, electricity is fully deductible.
In general, tax issues can be complex for small businesses. It is important to engage a tax professional if you are not sure of anything.