Keeping track of all your expenses as a self-employed individual is an extreme sport in itself. The situation is twice as worse if you’re crunching all the numbers by yourself. However, it isn’t uncommon for small business owners to handle all accounting aspects.
An accountant can identify the types of business expenses where the business can capitalize on, like tax deductibles. Unfortunately, not all businesses can afford to hire a full-time accountant. Businesses as such are the lifeblood of the American business community.
Taxes are a headache for many small businesses. With so many taxes to deal with these days, one might even think the state owns the business. Fortunately, there are a couple of tax deductibles that ameliorate the entire tax situation.
Running a business, both big and small, is expensive. You can liken tax deductibles to an apology from the government for having to spend too much on your business.
In this piece, we’ll look at a couple of tax-deductible business expenses. That way, you save time on all the number-crunching and also do some accurate financial organization.
Common Types of Business Expenses With Tax Deductibles
The IRS isn’t as cold as you’d perceive them to be. These deductibles enable a business to get more income. So let’s first define tax deductible expenses.
Tax deductible expenses are ordinary day-to-day business expenses. What makes these expenses so different is that the IRS doesn’t consider them as part of the business’ income during taxation. There are lots of these tax deductible expenses so the IRS is really rooting for businesses in the country.
Here are a few types of business expenses that are tax deductible:-
Home Office Expenses
You don’t need to run your business entirely from home to qualify for this tax deductible expense. If you handle any business activities at home in an area you designate for work, then you instantly qualify.
Now hold your horses before you get excited about nothing. Dedication is the gist of things with this business expense. Punching the calculator while you help your son with his homework does not count.
You need a section of your house that you dedicate completely to business activities. This business expense is more complicated. This is because the method to establish whether you qualify for the tax deduction is not quite clear and solid.
However, you can always check information from the IRS on the matter. Alternatively, you can hire a professional to take care of this particular issue.
Wages of Hired Experts
Even small businesses require some professional help permanently or at least once in a while. The fees you pay these professionals for their services are deductible. Some of these professionals include accountants and lawyers.
The total expenses paid for services like accounting are deductible. However, the fees you pay must be reasonable and not inflated. Otherwise, it may not count a tax deductible expense.
Company Equipment and Furniture
It’s amazing that what you pay for furniture can be deductible. As outrageous as it seems, this is very true. If your hotel got a new oven or new tables for more customers, then the cost of the items is deductible.
This expense is one of the more tricky ones, just like house office expenses.
Here you get to decide between two options. The first choice is to choose the deductible based on the price of purchase in that tax year. The other choice is to consider the price of the items over a 7-year depreciation period for the deduction. We highly advise you consider a professional for this expense if things get too complicated.
Gift Incentives for Clients and Customers
Small businesses are notorious for gifting their customers every now and then. Understandably, it’s a great way of enhancing customer loyalty and retention.
This expense has a limit on how much you can claim for deduction. Not surprisingly, the limit is only $25.
That said, don’t go too big on the gifts. Even if you got your client a $1,000 golf set, you only claim $25 for deductions. The rest of the $975 is on you.
Most businesses are peripatetic, and thus you’ll probably need a car or cab to get from one place to the other. You have to fuel your car and maintain it regularly so it serves its intended purpose.
Besides personal traveling, also consider other company automobiles. Think along the lines of trucks, vans, and motorcycles the company uses for various reasons.
Keep an accurate record of all vehicle activity so that you can maximize on this deduction. There are two ways to calculate the deductibles on vehicle expenses.
The first is direct calculation of fuel, maintenance and any other related costs. The other way is using the IRS standard mileage rate. This standard mileage rate is currently at 57.5 cents this year, down from 58 cents from last year.
Employers have a responsibility to their employees to provide them with their benefits during and after their tenure. Since these benefits aren’t considered as a salary, they are deductible. There are lots of resources where you can discover more about this.
These benefits include retirement benefits, disability benefits, and life benefits. Self-employed individuals may also qualify for some benefits. Retirement and pension are deductible even for self-employed folks.
A business setup can be so drab, and you need a bit of entertainment to spice things up. Since the IRS understands this so well, you also get deductible for entertaining clients and employees.
Some employers never thought anything like employee entertainment ever existed. However, deductible entertainment expenses are those that only occur within the business premises.
Get Your Expenses Deductibles; You Deserve Them
Running a business is pretty difficult and also expensive. So when the IRS gives you deductibles, you better get all of them. Hopefully, you now know a few common types of business expenses that qualify for tax deductibles.
Remember to keep accurate records, or these expenses may be disqualified from deduction. Also, note that deduction conditions may change from tax year to tax year, so be checking the IRS website regularly to have correct information always.
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