The tax seasons tends to be one of the most stressful periods in a financial year. There are lots of expenses to track, lots of forms to fill in, and painful checks to write. However, you can get some reprieve for your small business by taking deductions. There is some tax write offs available to small business owners, like LLCs and sole proprietorships, that drastically reduce tax liability. Here are just a few deductions you won’t want to miss:
1. Bad Debts
Every year lots of firms encounter bad debts as part of doing business. Bad debts tend to weigh heavily, causing some businesses to close. That’s why the IRS is always keen to classify the bad debts as deductions. However, this applies only for accrual basis, but not for cash basis taxpayers. Keep in mind that this applies to goods only, but not to services. For the small business owner, deductions are a fantastic way of minimizing your tax burden.
2. Home Office Deductions
Home office deductions are most popular deductions among small business people. Working from home entitles you to deductions on insurance premiums, utilities, mortgage interest, depreciation, and repairs. The rule is that space must have been exclusively designated as an office, even though it is in your home. The rules around home office deductions are strict, and it is often a flag for regular audits by the IRS. If used correctly, it can help reduce your tax liability, especially during the beginning point of the business operations.
3. Current and Capitalized Expenses
Current expenses consist of items like rent, electric bills and other ongoing bills involved in the day in the running of the business. On the other hand, capital expenses include asset expenditures such as vehicles and equipment. The rule is that if it stays on the books for more than a year, then it should be capitalized and amortized or depreciated (and thereby expensed) over time. There are also lots of current expenses that are capitalized until the business opens its doors. These include office expenses and repairs incurred before operations began, also referred to as start-up costs.
4. Travel Expenses
Small businesses incur lots of travel expenses both to meet with clients and to make deliveries. All these hotels stays and business travels are fully tax-deductible. The travel expenses also include 50% of any meals you eat out, rental cars, plane tickets, transcription services abroad and client expenses. Keep in mind that travel expenses specific to your fun during the travel are not tax deductible. The most critical issue is that you keep a good record of the receipt for all the expenses incurred during the travel and stay.
There are many others expenses which can be considered tax deductible. These include auto expense, software and subscriptions, health care costs, professional services, and retirement contribution. Research shows that very few business owners known the deductions that are available to them. Educating yourself on the available tax deductions could be one way of shoring up your net profits.