As a small business owner, you may be looking to decrease your expenses, lower your taxable profit, and increase your bottom line. The fact is, the more tax deductions that your small business is legitimately eligible for, the lower your taxable profit will be. This can save you a substantial amount of money when it comes to tax time. Understanding the IRS rules on business banking and knowing what isn’t and what is deductible on your taxes may put more money in your pocket, or back into your business investment. Deductions can also bring personal benefits, like a new car to drive or a combination vacation and business trip. Whether you are doing your own taxes this year or are having them done for you, here are some essential small business deductibles to look for.
If you have a business vehicle or you use your personal car for business, you can deduct a fraction of the costs associated with your vehicle. You can use either one of the two methods:
- Actual Expense Method: This method entails keeping track of and deducting all of your business-related expenses.
- Standard Mileage Rate Method: With this method, you can deduct a certain rate for miles driven in addition to all parking fees and business-related tolls.
Generally, if you own a newer vehicle that you use primarily for business purposes, the actual expense method allows for a larger tax deduction.
2.Expenses of Starting Your Business
Once your doors are open for business, you can deduct expenses such as utilities, advertising, repairs and office supplies; however, before your doors actually open these costs are referred to as capital expenses. You are allowed to deduct $5,000 for the first year of business, and the remaining amounts must be separated into equal amounts over a period of 15 years.
Many businesses run into the issue of accruing bad debt. The good news is that it may be tax deductible. It depends on what you are selling.
- Services: No deduction is allowed on time devoted to a customer who refuses to pay.
- Goods: If your business has sold a good to a customer that never paid for it, the amount can be deducted from your taxes.
Maybe you enjoy entertaining prospective clients or taking current clients out for dinner. You are able to deduct 50% of the tab if it is either:
- A business associated meal, and the entertainment portion is conducted immediately after or before the business discussion.
- Directly business-related and business is conducted at the event. For example, a catered lunch meeting at the office.
Small business owners across many industries need to travel while conducting their business. Traveling for business entitles you to deduct many expenses, including taxis, cost of airfare, car rentals, gas, lodging, meals, laundry, tips, telephone calls, and shipping business materials. Combining your family vacation with your business trip this year? Be sure to only deduct your expenses, and not your family members.
Understanding the ins and outs of business banking will help your small business to thrive. Next time you have your annual taxes completed, make sure that you declare all of the deductibles that you are legally entitled to.