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Small Business Tax Deductions

Some small businesses have not been negatively affected by the coronavirus (Covid 19) pandemic, while others had to permanently close their doors. Because much of the country had to shut down, the tax filing and payment deadline in 2020 was extended by three months until July 15. That extra time can be used to help you find more small business tax deductions.

Because so many small businesses have to tighten their belts and adjust their business practices, the three-month extension was a much-needed gift from the government. But in just a few weeks, it will be time to file and pay the 2019 taxes.

All small businesses want to pay as few taxes as possible, especially the ones who were negatively affected by the current pandemic. Here is a list of some of the most common small business tax deductions that you don’t want to miss out on.

Tax Deduction Definition

Tax deductions are expenses a person or business has during a tax year that can be applied against their gross income, thus reducing the person’s or business’s taxable income. These tax write-offs will lower your taxes due on the tax payment deadline.

What Are Some of the Most Common Tax Deductions?

Travel Expenses – Some expenses incurred during business travel can be considered business travel expenses and use as tax deductions. A business trip is one that takes you away from your tax home, which is the city or area where you conduct most of your business. Deductible expenses can include the following:

  • Meals
  • Tips
  • Lodging
  • The cost of travel to and from a destination away (plane, train, automobile) from your tax home
  • Parking fees
  • Vehicle rental vehicles, taxis, Uber
  • Shipping of business-related materials or baggage

Business Meals – As long as the meals fit the deduction criteria, 50% of your meal can be deducted. To qualify for the business meal deduction, the meal has to be a typically priced meal and nothing too expensive such as filet mignon and lobster, unless that type of meal fits the circumstances. It has to be necessary to conduct the business, and someone from your business must physically be at the meal. If the meals are part of an office party or barbecue, they are 100% deductible. It is imperative you save every receipt and take notes (preferably on the back of the receipt) of the date, location, amount, who you’re with, and the purpose of the meal.

Insurance – In most types of businesses, full and partial deductions are allowed for business owners policy, flood, malpractice, Worker’s Compensation, general liability, commercial property, and business continuation.

Rent on Property – This expense is fully deductible includes an office, brick and mortar storefront, mall location, boutique, or several other types of facilities. If you work from home, you can deduct the area of your home used for business purposes.

Taxes – Typically, employer taxes are fully deductible, and real estate and personal property taxes are deductible. Consult your accountant for tax deductions specific to your type of business.

Utilities – Electricity to run your place of business is deductible, and so are other charges such as business mobile phone services, garbage pickup and recycling, and water.

Advertising – Advertising and promotion expenses are fully deductible, and these deductions can include starting a website, event sponsoring, buying ads in print or online media, purchase of business logo design, cards or brochures, or a marketing campaign.

Depreciation – This can apply to most business assets including equipment, building, furniture, vehicles, and much more.

Education – There are several types of education expenses that are fully deductible including classes in your industry that will improve your skills, business-related books, workshops, webinars, transportation to classes, and professional publications that could help you in your business. Some professions require yearly credits or classes to be obtained to maintain a license, and these qualify.

Legal and Professional Fees – If these fees are necessary for, and related to your business, they are deductible. Examples of these expenses include those paid to bookkeepers, accountants, and lawyers.

Salaries – This includes salaries, vacation time, and benefits, and are typically tax-deductible depending on if the employee is the sole proprietor, partner, or LLC member, and if the salary is a typical salary for that occupation.

There are many other deductions available for a business, and it would probably be advantageous and even profitable for you to hire a tax accountant to help with your business tax filings.