8 Tax Deductions Your Business Should Be Aware Of
While tax credits can be used to reduce the amount of taxes that you owe, tax deductions can be used to lower the amount of income that is being taxed. In this post, we’ll review some of the most readily available tax deductions, so that your business can save some money!
1. Home Office Deduction
If you work from home or use your home as your primary place of conducting business, you may be eligible for a home office tax deduction. This means that a portion of your annual rent or mortgage can be subtracted from your taxable income. Using the IRS’s simplified deduction method, this can reduce your taxable income by up to $1,500 per year.
2. Moving Expenses
If you had to move due to your job, you’ll likely be eligible for a tax deduction. To take advantage of this opportunity, you must keep track of every expense associated with moving, such as renting a truck, hiring movers, and other necessary costs.
3. Educational Expenses
The first $4,000 your business spends on educating or training your employees can be written off and is free from taxation. The IRS has a pretty generous definition of what they consider to be an education expense, so this is a tax deduction you shouldn’t forget about.
4. Legal, Tax, and Accounting Services
If your business hires an attorney or an accountant that is related to “ordinary and necessary expenses directly related to operating your business,” then the hiring costs can generally be deducted from your taxable income. This also means that if you need to hire someone to help you with any financial reporting, you can do so tax-free.
5. Insurance Expenses
To encourage small businesses to insure themselves, the IRS also offers tax deductions for most types of business-related insurance, such as:
- Building insurance
- Equipment insurance
- Liability insurance
- Worker’s compensation
- Employee’s health insurance
- Errors and omissions (E & O) insurance
Generally, your insurance provider will be able to tell you if the specific type of insurance that you’re purchasing will be eligible for a tax deduction.
6. Marketing and Advertising Expenses
If an expense is incurred through the ordinary course of doing business, it will usually be tax deductible. Due to this, it’s important to track the money you spend on marketing and advertising because these expenses can be written off later.
7. Telephone and Internet Expenses
Telephone and Internet expenses can be a little confusing because although many people use their phone for business purposes, they also use it for personal reasons too. However, the IRS is usually pretty generous with their definition of what constitutes a ‘business’ expense. If your business has a substantial reason for purchasing Internet or phone services, these expenses are usually tax deductible.
8. Energy Expenses
Utilities that your business uses on a day-to-day basis such as electricity, heat, and water will be eligible for a sizable tax deduction. Additionally, depending on the kind of energy you use, your business may also be eligible for an energy tax credit. The Business Energy Investment Tax Credit (ITC) encourages businesses to use cleaner and more sustainable types of energy. If your business uses solar, wind, tidal, or other renewable energy sources, this tax credit is worth pursuing.
These are just a few of the many tax deductions that are available to your small business. To take advantage of these deductions, it’s important to clearly track your business expenses throughout the year. Generally, any expense that can be reasonably attributed to your business is something that can later be deducted from its taxable income. You may also be eligible for additional tax credits depending on how your business operates.
Do you have other tax deductions that you think fellow small business owners should be aware of? Let us know in the comment section below.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.