7 Common Tax Deductions for Small Businesses
Understanding and utilizing available tax deductions can significantly reduce your tax burden and maximize your profits. Here are some common tax deductions that your small business should consider to save money.
1. Home Office Deduction
If you use part of your home exclusively for business purposes, you may qualify for a home office deduction. This can include a portion of your mortgage interest, rent, utilities, insurance, and repairs.
How to Qualify:
The space must be used regularly and exclusively for business.
It must be your principal place of business.
Tip: You can use the simplified option to calculate your deduction: $5 per square foot of your home used for business, up to 300 square feet.
2. Business Vehicle Expenses
If you use a vehicle for business purposes, you can deduct related expenses. There are two methods to calculate this deduction: the standard mileage rate or actual expenses.
Standard Mileage Rate:
Multiply the number of business miles driven by the IRS standard mileage rate (65.5 cents per mile for 2023).
Actual Expenses:
Deduct the actual costs of operating the vehicle, such as gas, oil, repairs, insurance, and depreciation.
Tip: Keep detailed records of your business mileage and vehicle expenses to substantiate your deduction.
3. Supplies and Equipment
Expenses for office supplies, software, and equipment used for your business can be fully deducted. This includes items like computers, printers, and office furniture.
How to Qualify:
The items must be necessary and used for your business.
Keep receipts and records of all purchases.
Tip: For larger equipment purchases, consider Section 179 deduction to write off the entire cost in the year of purchase rather than depreciating over several years.
4. Travel Expenses
Business travel expenses are deductible if the travel is necessary for your business. This includes transportation, lodging, meals, and incidental expenses.
How to Qualify:
The trip must be primarily for business purposes.
Maintain records of the business purpose of each trip.
Tip: Only 50% of meal expenses can be deducted, so keep separate records for meals and other travel expenses.
5. Professional Services
Fees paid to professionals such as accountants, lawyers, and consultants are deductible. These services must be directly related to your business.
How to Qualify:
The services must be necessary for the operation of your business.
Keep invoices and payment records for these services.
Tip: Regularly consult with a CPA to ensure you're taking full advantage of all available deductions.
6. Employee Salaries and Benefits
Wages, salaries, and employee benefits are fully deductible as long as they are reasonable and paid for services actually rendered.
How to Qualify:
Payments must be for actual work performed.
Maintain detailed payroll records.
Tip: Consider offering benefits like retirement plans and health insurance, which are also deductible and can help attract and retain employees.
7. Advertising and Marketing
Expenses related to advertising and marketing your business, such as website costs, business cards, and online advertising, are deductible.
How to Qualify:
Expenses must be directly related to promoting your business.
Keep receipts and records of all marketing expenditures.
Tip: Invest in a mix of marketing strategies to maximize your reach and effectiveness.
Conclusion
Taking advantage of these common tax deductions can help reduce your tax liability and increase your bottom line. At Archer Lewis, we’re committed to helping small businesses thrive by providing expert tax services and personalized advice. Contact us today to learn how we can support your business’s financial health and compliance.
Maximize Your Tax Deductions with Archer Lewis
Don’t let tax season overwhelm you. Let Archer Lewis (AL) help you navigate the complexities of business taxes and ensure you’re taking full advantage of all available deductions. Reach out to us for a consultation and discover how we can make tax time easier and more profitable for your business.