Whether you're a sole proprietor or an LLC, you want to get every write-off possible. You're in business to make money, so keep all of it that you can. This small business tax deductions guide from experienced Chicago CPA firm Susan S. Lewis, Ltd.
What Is a Tax Deduction?
A tax write-off, or tax deduction savings, is an expense you can deduct from any taxable income that you might be responsible for. Keeping a comprehensive list of tax deductible business expenses helps you save.
How Do Business Tax Deductions Work?
Business expense deductions lower your overall taxable income. In turn, this minimizes how much tax you will owe the government when filing your business tax return. A tax professional can help you maximize this benefit.
The List of Top Small Business Tax Deductions in 2022
What expenses are tax-deductible? There are many tax-deductible business expenses. Here are a few that you should know about.
Advertising and Promotion
Your small business has to advertise just to get any kind of market share. Get tax deductions for anything from direct mail and business cards to website design and online ad campaigns.
You can deduct up to half the value of certain business meals, but you do need to provide sufficient documentation. That would include time/date, location, the purpose of the meal, and any receipts.
Your business needs many kinds of insurance, just like your personal life does. Your needs might vary based on sector, but you should always be able to deduct your premiums.
Business Interest and Bank Fees
Your company will probably need a bank account that has fees. You might also pay interest on bank loans or credit card debt. These are all things that you should be able to deduct with the right supporting documentation.
Business Travel Expenses
If your line of work takes you out of town, keep every receipt and log your mileage if you drive. You might be able to deduct most or all of the expenses involved with your trip to keep your tax obligations down.
Business Use of Your Car
If a passenger vehicle is only used for work purposes, you can deduct 100% of its costs. If it's also used with personal matters, you can deduct just the miles you log for business work.
Client and Employee Entertainment
You might be able to deduct 50% of entertainment expenses when out with clients or 100% of entertainment expenses spent on your employees. Keep lots of supporting documentation.
If your business ever relies on contract, temp, or seasonal labor, then what you pay them is totally tax-deductible. Just make sure that you issue a 1099 form to anyone who makes more than $600 from you in a single year.
Depreciation is an accounting technique where you deduct the expense and full value of an item over the years that you own and use it rather than all in the year that you buy it.
Books, classes, webinars, trade seminars, and trade publication subscriptions that help you improve at your particular craft are all educational expenses that might be tax deductions you can enjoy.
Energy Efficiency Expenses
Wind turbines, solar water heating, and solar panels are all home improvements that make your residence more energy-efficient. You can deduct up to 30% of the total value that you pay.
Home Office Expenses
If you do any of your work from a home office, you might be able to deduct certain expenses to a degree. You can usually choose the standard method or do an itemized list.
Certain personal expenses you might have can be things you see as business expenses, but they might not be on the list of approved business deductions or write-offs. Still, you might be able to include them on your personal tax return.
You can't deduct charitable contributions from your business expenses, but you can do it through your personal taxes. Do make sure that you are donating to a qualified organization so the money counts.
Child and Dependent Care Expenses
This is when you pay someone to care for a dependent for you while you work. Normally, this would be a child under the age of 13, but others incapable of taking care of themselves could also possibly qualify.
Contributions made to employee retirement accounts can count as a business write-off. That's true even if you're the employee whose plan is being contributed to under most circumstances.
Health Care Expenses
You should be able to deduct insurance premiums, prescriptions, and costs for office visits. If you own a small business, you might be able to deduct your insurance unless you're eligible for a plan under your spouse.
Phone and Internet Expenses
No business can operate without being able to communicate with everyone, but it's also not free. Fortunately, your phone and internet fees can be something you deduct.
Professional Service Fees
Accounting, legal, and bookkeeping services are all specific examples of professional services you might need for necessary business functions that can also be potential tax deductions.
How to Write Off Business Expenses
Business tax write-offs for a sole proprietorship happen using a Schedule C. This determines your taxable profit for a given tax year, and then, you report that profit using your personal 1040 form.
What Is a 100-Percent Tax Deduction?
The 100% tax deduction is one you can claim for certain expenses and get full deduction value for. Specific examples include office furniture, office equipment, business travel, phone bills, and some health insurance.
Can You Write Off Previous Years’ Taxes?
If you're a small business, then you might be able to write off any local or state taxes in the same year that you have paid them. This might be possible even if those taxes are from an earlier year. Just keep in mind that you can't deduct your federal taxes paid for earlier years.
Whether you need tax write-offs for an LLC or your sole proprietorship, a tax professional's help can be invaluable in making sure you get every benefit possible. Lewis.CPA is just what every business needs in dealing with this. Contact us for additional information!