Running a business is a lot of work. From overseeing day-to-day business operations to hiring employees, attracting new customers, and directing long-term strategy, business owners have a lot on their plates.
Accounting and taxes are among the most demanding functions that business leaders must manage. This is where accounting professionals come in to offer a helping hand.
Outsourced accounting services are an excellent solution for businesses and professionals seeking reliable, cost-effective tax and accounting expertise. Even with the support of a professional, it is still helpful for business leaders to understand their current tax situation and liability, as well as opportunities for tax credits and deductions.
Below, we have rounded up the top business tax deductions that business owners should be aware of. But first, let’s understand what business tax deductions are.
What Are Business Tax Deductions?
Business tax deductions are business-related expenses you can subtract from your company’s taxable income. In other words, they are write-offs that help lower the amount of taxes you’ll pay. Understanding the business deductions available to you is critical to minimizing your tax burden.
Here are ten common tax deductions you should know:
If your business provided a loan to an employee, supplier, or client that was never paid back, you can claim the bad debt as a tax deduction. However, you must have some proof to confirm it was a business debt.
Utilities, Phone, and Internet Expenses
When preparing taxes, you may deduct the cost of utilities for your business’ operating facilities. Rent, internet, and phone expenses are also tax-deductible.
Legal and Professional Fees
Any fees paid to lawyers for cases deemed necessary to your business are tax-deductible. Similarly, fees paid to accountants, bookkeepers, tax preparers, and other business service providers are also deductible.
In order for car expenses to be tax-deductible, the vehicle should be used for business operations only. You’ll also need to keep a record of the mileage.
As long as the expenses are not considered lavish or extravagant upon examination by the IRS, you may deduct the costs of business meals and entertainment from your taxable revenue. Tax-deductible costs may include meal expenses during business meetings, company parties, training seminars, or other corporate events.
Freelance and Contract Services
Payments made for freelance services are tax-deductible. Once the payments go beyond $600 in a tax year, you are required to submit Form 1099-NEC to the contractor and the IRS.
Business Loan Interest
Interest paid on any business loan is tax-deductible. The loan must be directly related to the operation of the business. Examples include mortgages on business properties or lines of credit extended for new equipment purchases.
Education expenses, such as upskilling and reskilling costs for employees, are tax-deductible. You’ll also benefit from this deduction if you choose to further your knowledge as a business owner.
Home Office Expenses
If you are working from home, you can claim a tax deduction on the expenses tied to maintaining your home office.
If you have any business insurance coverage, such as liability, data breach, or property insurance, you can claim 100% of the premiums as tax deductions.
Keeping Up With Business Tax Deductions
Besides the above business tax deductions, you can claim several other write-offs from your taxable revenue. These include advertising and promotional expenses, gifts, startup expenses, and travel costs. By consulting with an experienced tax accountant about available tax deductions, you can stay ahead of the game and minimize your tax liability.