Crucial Tax Deductions Every Small Business Owner Should Know
If you’re a small business owner or freelancer, you know how quickly every small expense that you pour into your business adds up. This is especially apparent when it’s coming out of your own paycheck. Fortunately for you, if you can keep some stringent records, there are quite a few opportunities out there for tax deductions that, when added up, can really keep you from breaking the bank.
Here is a list of eight tax deductions that every small business owner or freelancer should know in order to save the most money as possible before filing their taxes in the spring.
Keep a close eye on how much you spend on advertising because those costs can quickly add up – and all of them are tax-deductible. Everything from flyers, print ads, business cards, or fees that you pay for advertising services solely for the promotion of your business can be written off during the fiscal year.
It may seem like a waste of time to keep track of 10-cent postage cards, but if you’re mailing out thousands of them to faithful customers on a yearly basis, those costs can all add up to give you a nice tax break.
General Business Tax Credit
Although this isn’t one specific tax break, this is really a catch-all tax credit that combines several different expenses. This one was created to encourage small business owners to do specific things such as swap out their gasoline vehicle for an electric one or retain employees for a set period of time.
Each one has an attached form that should be filled out separately, but it will all come together in the end on what’s called a Form-3800, or the “General Business Tax Credit” form. You might consider investing in some of these initiatives not only to make the world a better place but also to benefit your business and get a tax deduction in the process.
Another thing that adds up quickly is vehicle expenses. Gasoline, repairs, and general wear and tear from extended use all add up quickly, especially if you use your vehicle for business. If you have a vehicle solely for business, this one may be easy, but if you share one vehicle for both business and personal use (as many small business owners do), you will need to keep dedicated records.
Every time you use your vehicle for business purposes, track your mileage, gas, and needed repairs. You can use actual expenses incurred or the standard IRS mileage rate. Calculate both at the end of the fiscal year to see which one gives you the bigger deduction.
Expenses for website upkeep also may add up. Paying for the domain, paying someone to keep up the site if you are unwilling or unable to do it yourself, paying to have it designed and created, as well as hosting, software, or image licensing, are all tax-deductible expenses. Again, this is something that may take time to keep up records with but is worth it in the end as these expenses really do add up over time.
Employee Health Insurance
If you want to provide your employees with health insurance, you can get a tax deduction for doing so. Not only would you be a responsible business owner – which looks good on you – but you can get a credit for up to 50% of the premiums you paid for health insurance coverage. You do have to meet specific requirements, however.
Home Office Space
If you have a dedicated home office room or supplies, you may be able to write this off on your taxes. The catch, however, is that you must have dedicated office supplies that are used solely for work purposes. If you have a desktop computer that doubles as a work and personal computer, you cannot write that off on your taxes.
Likewise, if you have a home office space dedicated solely to your business, you can actually write off the cost of the square footage of your home. But if that office doubles as a nursery or storage room, you can’t count that. Make sure that you consult with a professional taxpayer before attempting to do this, as the IRS is known to come after business owners over this during an audit.
Paid Family & Medical Leave
Under the Family & Medical Leave Act, employees must be eligible for 12 weeks of unpaid, job-protected leave every year for situations such as the addition of a child or a health emergency in the immediate family. However, employers may choose to pay an employee during this time of leave up to 100% of their original salary for all or part of their leave.
If you pay your employee no less than 50% of their original wages for at least two weeks of their leave, and the employee has worked there for at least a year, you may claim the credit equal to a percentage of wages you pay the employee on your taxes.
This may seem like a no-brainer, but for some, it’s not. If you’re a sole proprietor or LLC, you can write off the wages you pay your employees. Other wage expenses such as bonuses, meals, and lodging are also tax-deductible.
All in all, if you’re willing to keep detailed records and put in the time and effort, there are multiple opportunities for small business owners and self-employed individuals to save quite a bit of money on their taxes. Just make sure you are keeping your work life and business life separate, or you may find yourself on the bad end of an audit by the IRS.