A Guide to Small Business Tax Deductions
Take advantage of small business tax deductions to help your business thrive.
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Last Updated on June 25th 2021
Running a small business can be mentally overwhelming, but tax deductions don’t have to be. At National Funding, we want to help you make the most of your money so that you can stay focused on growing your business.
On This Page:
- What is a Tax Deduction?
- Keeping Track of Your Tax Deductions
- List of Small Business Tax Deductions
- FAQ’s on Small Business Tax Deductions
What is a Tax Deduction?
A tax deduction is an expense or cost that individuals or businesses can “write-off” or deduct from their taxable income when calculating how much they owe for the year. Tax deductions effectively remove that income from consideration. Tax deductions can sometimes move businesses from one tax bracket to a lower one, thus reducing the overall rate at which their income is taxed.
Tax deductions are extremely valuable for small businesses because they can save them thousands of dollars a year in taxes. That’s why we’ve created this guide to small business tax deductions so that you can take advantage and be aware of deductions to save you money.
Tax deductions can help save businesses money at year’s end, but deductions aren’t always the ideal solution when it comes to flexible funding for day to day working capital. At National Funding, we offer a variety of funding solutions so that your business can be equipped for growth right now. With a quick and easy application process, minimal paperwork, high approval, and fast turnaround for funding, you can be sure that your business is prepared for anything, right when you need it.
Talk to a funding specialist at National Funding for personalized advice on your financing options.
Keeping Track of Your Tax Deductions
Preparing correctly for tax season can make the process much easier. A standard tax deduction is available for small businesses, but if the standard deduction is less than an itemized deduction would be, it’s more valuable to spend the time on the itemized deduction in the end. The key to prepare for tax season is to make sure you’re keeping track of your taxable expenses throughout the year on a quarterly, monthly, or even daily basis rather than doing it all at once.
When it’s time to file your taxes, consult a CPA or financial advisor to make sure you are taking advantage of all available tax deductions. Along the way, however, your business should be sure to document expenses regularly. Explore our infographic below for tips and deductions to keep in mind throughout the year so that your small business tax deductions will be ready for tax season.
List of Small Business Tax Deductions
The IRS accepts tax deductions on any expense that is ordinary and necessary for a business. For example, the cost of ingredients like flour, eggs, and baking powder would be ordinary and necessary for a bakery but not for a dental practice. There are hundreds of different expenses that could reasonably count as small business tax deductions. The following are some major categories that many businesses take advantage of.
Office and Facility Deductions
1. Rent & Utilities
Rent is 100% deductible for businesses that rent office spaces, warehouses, factories, boutiques, or other buildings and facilities used to house a business.
Utilities like electricity are also tax deductible as it is usually necessary and certainly ordinary for businesses to use.
Various types of insurance for a business can be itemized in a tax deduction and are fully deductible. Premiums paid for employee insurance award tax credits instead which are even more valuable than deductions (See Employee Deductions).
Examples of Deductible Insurance:
- Property coverage
- Malpractice insurance
- Auto insurance for business vehicles
- Business continuation insurance
Costs incurred to fix regular wear and tear for an office space count as small business tax deductions. Fixing up business facilities and buildings can be itemized this way, however repairs that add value to a property are usually alternatively handled through depreciation.
Businesses don’t make something out of nothing. They have to buy supplies and equipment first. Whatever supplies or items are used to provide a product or service are fully deductible expenses for small businesses as they are fully ordinary and necessary for the business.
The “supplies” category also extends to everyday office supplies like paper, pens, ink cartridges, shipping costs or even software that is necessary to facilitate day to day operations.
5. Internet and Telephone
In 2021, internet and telephone services are vital for nearly all small businesses and organizations. These can be deducted from your taxable income.
For those working at home, only the percent of the bill used for business can be deducted, so make sure to keep a detailed log in case of an audit.
6. Other Office Expenses
Offices require furniture like couches, tables and chairs. These are tax deductible. Sometimes even the cost of office decor like posters or plants counts as a small business tax deduction. This can be explored further by understanding the section 179 deduction.
Take Advantage of the Section 179 Deduction with National Funding
The section 179 deduction can be a great way to get the equipment, tools, or office supplies you need in the most tax-efficient way possible. At National Funding, we can help you take advantage of modern tax incentives so that you can make the most of your money and move your business forward.
See how easy it can be for you to get the equipment you need by chatting with our Funding Specialists.
1. Employee Salary
Salaries, wages, commissions, bonuses and others are valuable small business tax deductions. This is a large amount that should not be forgotten in any tax year.
2. Employee Benefits, Retirement Plans, and Insurance
Benefits such as education assistance, dependent care assistance, qualified retirement plans, and insurance premiums paid by employers are also tax deductible. Business owners should consult with professionals to check what benefits are tax deductible and which provide tax credits such as insurance. This can greatly alter tax payments.
Educating workers to increase their skill and expertise can be tax deductible according to the IRS’s tax benefits for education. This education can take the form of conferences, workshops, online courses, industry centered books, and or trade magazine subscriptions. Businesses that offer these educational opportunities to employees can often deduct them from taxable income, and may even deduct the cost of transport to and from classes or conferences if it applies.
4. Contract Labor
Businesses using freelancers or contracted labor can deduct those costs from their taxable income. For auditing purposes, businesses who use contracted work should be sure to fill out
Supply them to any worker who has received over $600 from them that year.
Out of Office Cost Deductions
1. Business Meals
Business meals such as lunch meetings with clients are 50% deductible for small businesses. As with many deductible expenses, itemized meals should be documented with information about the purpose behind the lunch, time, date, attendees, and other key variables to help prove the necessity of the business lunch to the IRS in case of an audit.
2. Car and Transportation
Car expenses like gas and costs associated with vehicle wear and tear can be deducted from taxable income. Businesses can choose to use the standard mileage provided by the IRS or carefully record actual expenses with a detailed log of vehicle mileage with time, place, and purpose of miles used. Certain apps can also be used to make this process easier.
Business trips that meet IRS requirements are eligible for full tax deduction. This includes many costs of a trip including airfare, lodging, taxis, meals, tips, luggage costs, and other ordinary expenses related to travel.
Travel expenses should be thoroughly documented with receipts and reasons for expenditures, particularly the overarching goal and purpose of the trip.
Services and Fee Deductions
Advertising is an ordinary and necessary expense for almost any business so all advertising expenses from the cost of business cards to a LinkedIn or Facebook ads campaign is fully tax deductible. Small business tax deductions for advertising encompass promotion across myriad media, and are often recorded simply under advertising expenses.
2. Legal and Accounting Fees
Legal fees are 100% tax deductible as long as they follow the requirements of being ordinary and necessary. This is often for services like reviewing business contracts and leases, but can sometimes include handing wills if the will involves distributing pieces of the business.
Accounting fees can be deducted for the year they are used. For example, accounting services used in 2021 for 2020 taxes, that service can be written off in 2022 when 2021 tax returns are filed.
3. Bank Fees
Maintaining a business checking account or ordering new checks can accrue certain costs. Bank fees like these are fully deductible for small businesses. This does not extend to personal bank accounts or credit cards.
Tax and Loan Deductions
1. Mortgage & Business Loan Interest
Business loans are tax deductible, and so are mortgages on business property. Both can be written off along with interest paid on business loans in general. That means interest on business loans from National Funding are tax deductible!
Depreciation can be complicated, so is best suited for more experienced tax professionals and financial advisors. However, usually depreciation involves spreading the cost of a large expense such as large equipment over multiple tax years.
Being able to deduct a large cost all at once is ideal for tax purposes, and can be done in certain circumstances with the section 179 tax deduction, but this isn’t always possible.
3. Other Taxes
Various taxes, including ones specifically related to your business, can be deducted on federal income tax statements. Consult with your CPA or financial advisor to ensure you account for all deductible taxes
- Payroll taxes
- Employer taxes
- State income taxes
- Real estate taxes for business properties
Licenses and regulatory fees
Make the Most of Business Loans with National Funding
As an alternative lender for small businesses, we at National Funding are fully equipped with Funding Specialists who can provide the funding solution that matches your business. From there, they can advise exactly how to make the most of small business tax deductions. You can use National Funding to boost your business and save in the long run with our tax advantaged business loans.
Find out how much you qualify for.
FAQ’s on Small Business Tax Deductions
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