There are over 32 million small businesses operating in the US.
That’s a lot of people working hard to sell their products/services and, hopefully, turn a profit!
Let’s face it, money is the lifeblood of any business. It’s a competitive world. With insufficient capital to hand, it won’t be operational for long.
For that reason, it’s vital that small businesses squeeze as much money as possible from operations.
Tax deductions constitute one essential method of doing exactly that.
After all, paying a hefty tax bill is rarely pleasant. For small businesses trying to maximize their profits, it can even mean the difference between success and failure. Are you looking for ways to save money on your business’ tax bill this financial year?
Keep reading to find out 8 must-know tax deductions for small businesses.
1. Business Supplies
Let’s start with the basics:
You can deduct from your tax bill all of the expenditure on essential business supplies.
It might not seem like much. However, any owner knows how much these necessary fees can stack up. For boot-strapping start-ups, every little bit counts!
Look around you. It’s possible to claim for almost anything you’ve bought for the purpose of doing business. Stationary (pens, pencils, paper, staples…), printers, cleaning materials, desks, chairs, sofas, whiteboards, projectors…The list goes on.
You can deduct any and all of them.
2. Travel Expenses
Business travel isn’t cheap.
It’s also essential for many companies. Business travel is commonly a vital aspect of creating leads, meeting with investors, attending conferences, generating interest, and so on.
There is all manner of opportunities to travel for business purposes.
Nicely, almost all of it can be claimed for. Often, entertainment costs can be claimed for too.
All of those flight tickets, bus tickets, train fares and so on are all deductible. Likewise, certain related expenses such as meal costs, room service, dry cleaning and so on can be claimed.
Of course, keeping a solid record of each transaction is important. Equally, certain limitations apply too. You can’t claim for absolutely everything! You must understand your tax obligations in full to be successful in any tax preparation.
3. Personal Vehicle Expenses
Many small business owners use their personal car for work purposes.
The money spent on this process is often tax-deductible. Note that only the business side of things can be claimed for! It’s crucial to separate the business from personal usage.
Granted that’s possible, then you can claim for everything from mileage to parking fees. It’s often tricky to ascertain true mileage for a trip. Be sure to record mileage by referring to the odometer, or a GPS system.
Don’t forget to deduct expenses for insurance and maintenance costs too. Owning a vehicle isn’t cheap. Using it for work can only exacerbate that. Be sure to leverage the tax deductions available!
4. Necessary Overheads
Look at what you fork out every month to keep your business operational:
Rental commitments, utility payments, internet costs, and phone usage are all crucial costs. They’re all unavoidable expenses. You couldn’t do business if you didn’t pay for them all.
For that reason, it’s possible to deduct it all from your tax bill! This can make a big difference at the end of the financial year. Again, accurate record-keeping throughout the year is essential.
5. Software & Equipment Costs
Almost every business has specific demands.
Industry-specific equipment and software is often a necessary expense. Likewise, updates and new installs are vital to staying up to speed.
These costs represent another worthwhile deduction on your tax bill. You can claim for each and every one of them, up to a certain amount of money. That means your actual computers, and all computer software can be claimed for.
Other essential equipment (such as equipment for manufacturing) can also be deducted under this bracket.
6. Your Home Office
Most people think of business and conjure images of swanky corporate offices in the city.
And, of course, that’s often accurate.
However, many small businesses are operated straight out of the family home. If that’s your set up, then you have the benefit of claiming for the costs of your home office.
That said, it must be wholly business-related. You can’t work from your kitchen and claim it’s your office! Instead, a designated space from which you operate is required.
Tick that box, and say hello to deductions for internet, insurance, rent, phone bills…and so on. Likewise, furniture and supplies can be claimed for too.
7. Outsourced Professional Services
It’s rare for someone to actually enjoy the tax process!
Consequently, many business owners opt to outsource the process. All bookkeeping and tax returns are completed by a professional.
Nicely, their fee can be deducted from your tax bill at the end of the year. Even better, it’ll be their job to work it out and complete the forms for you!
It doesn’t stop there. You might work with lawyers and consultants as well. It’s possible to claim for the money you’ve paid them too.
8. The Interest Payments on Debt
If you’ve gone into business, then chances are you’ve taken on debt to fund it.
Leverage, in the form of bank loans, is often an essential means of getting it up and running. After all, almost every business needs upfront investment to become a success. This start-up capital is used for all sorts of reasons. It can amount to a significant sum.
The burden of debt is rarely fun. However, it’s possible to claim for some of it.
Unfortunately, the loan itself is off-limits. But the interest payments are entirely tax-deductible.
Final Thoughts on Tax Deductions for Small Businesses
There you have it: 8 essential tax deductions for small businesses to know about.
Millions of small businesses are currently operational in the US. It’s guaranteed that profit maximization is a priority for every single one of them.
Indeed, the ability to cut expenses and turn a profit is vital to remain in business. Cutting costs wherever possible often comes into it. Tax deductions are an easy and essential method of doing exactly that.
Hopefully, this post has highlighted the main sources of tax deduction out there.