One of the most dangerous attitudes a business owner can have is to is assume that they know everything. This applies just as much to business taxes as it does to day-to-day operations. There’s always more to learn, and as much as you might know about taxes, you may be missing out on key tax deductions just because you haven’t heard about them. You are likely familiar with business meals and travel deductions; however, depending on the type of business you run, you may be eligible for certain other tax deductions that you may not have considered. Here are ten deduction opportunities you should be aware of before the next tax season.
Employee salaries and benefits
The cost of these business-related items can be deducted only if you employ people other than yourself. In addition to salaries and benefits, you can also deduct paid time off, commissions, bonuses, and payroll-related employment taxes.
Business credit card and loan interest
If you want to deduct interest from business credit cards and loans, make sure you adhere to the rules set forth by the IRS. You must be the person who is legally liable for the debt. A debtor-and-creditor relationship must exist between you and your lender. Additionally, you and your lender must have the understanding that you intended to repay the debt you owe.
Independent contractors
The money that you pay for business-related services—namely from independent contractors and freelancers—can also be written off on your taxes. However, keep in mind that any of the contractors you pay cannot be employees of your company. Also, the services they perform must be for your business, not for personal reasons. If you have paid any contractors or freelancers more than $600 in a given tax year, make sure you fill out Form 1099-NEC. Otherwise, you’ll run the risk of penalties and fees imposed by the IRS.
Business bank fees
Has your bank ever charged you a monthly fee in exchange for access to the bank’s services? What about overdraft fees or wire transfer fees? If so, you can deduct these fees from your taxes as long as the fees pertain to business matters. Also, if you sell products and collect money via a third-party payment vendor, like PayPal or Square, those fees are also eligible for tax deductions.
Startup business expenses
If you recently launched your company, then you already know how expensive the costs of starting your business can be. The good news is that the IRS permits new business owners to deduct 100% of all startup expenses, though the limit is $5,000. You can deduct expenses that stem from hiring a business consultant, traveling to conferences, attending training events, building a website, and launching a marketing campaign.
Business losses
Did you lose money during any given tax year? If so, the IRS says you can write off that money as a loss. As the owner of a sole proprietorship or an LLC, you can write off your losses in full. Plus, if you experience business-related losses for many years in a row, you will not be susceptible to penalties.
Legal and professional fees
Have you paid for professional services to assist with your business? From accountants and lawyers to bookkeepers and other professionals, you might be able to deduct the costs of these services. However, these expenses need to relate to your business in necessary and relevant ways.
Charitable contributions
If at any point during a given tax year your business donated money to a charity, you can apply this donation to your taxes and lower your tax liability in that way. That said, please note that you can only write off 60% of your donations to charity if you made a cash contribution. It must have been donated to a qualifying charity as well.
Retirement plan contributions
As a business owner, it’s likely that you are the only person contributing to your retirement plan. If that’s the case, the IRS lets business owners like you deduct these contributions from your income taxes if you have an eligible retirement account. Contact a financial professional to see how each options works.
Depreciation
Do you own any depreciating business assets? The most common depreciating business asset is real estate, like your office, though this is not all that depreciating assets entail. Ultimately, if you have any assets that depreciate, you can deduct them as long as they qualify in the eyes of the IRS. For qualifying assets, fill out Form 4562 and send it to the IRS along with your tax return. There are some restrictions, like only being able to claim depreciation-related deductions for computers and cars over a five-year period. Likewise, with furniture and appliances, you can only write off the depreciation over the course of seven years.
Have questions?
This is just a summary of complex provisions. There are many more details, and specific limits can change, often with little warning. If you have questions about business-related tax deductions, our Business Tax and Advisory team is here to help. Contact us to learn more.
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