Understanding Your Small Business Tax Deductions

To quote an old advertising slogan, “You must pay taxes, but there’s no law that says you have to leave a tip.” For small businesses, that means taking advantage of all the tax deductions you can. The deductions may vary based on whether your business is organized as a sole proprietor, partnership or corporation. That’s why it’s important to talk with your tax professional. Here are some potential deductions to consider as you prepare to meet this year’s April 15 filing deadline.

Business Deductions Defined

According to the IRS, certain types of business expense may be deductible for federal tax purposes if the business operates to make a profit. To be eligible, the expense must be: 1) commonly accepted in your trade or business and 2) must be helpful and appropriate.

Deduction Checklist

This is a partial list of potential federal business deductions. Some may not have occurred to you so review the entire list to see which might apply to your business. If so, make a note to discuss them with your tax preparer.

  • Bank charges – check charges, monthly fees, bank wire fees, overdraft fees
  • Business gifts – calendars, pens, promotional magnets
  • Business-related education – seminars, classes, DVDs, journals, newsletters
  • Business use of your home or car – document with supporting information like mileage and receipts
  • Charitable contributions – the receiving organization should provide documentation of your donation
  • Depreciation – the decrease in the value of your equipment due to wear and tear over time
  • Employee pay – wages given to employees for services performed for your business
  • Insurance – cost of certain types of insurance including health insurance for employees, some types of life insurance, some retirement contributions
  • Interest – amount charged for the use of money borrowed for business activities
  • Ongoing costs – utilities, shipping, marketing expenses, phone and Internet charges, software, equipment repair
  • Professional fees – legal, accounting, trade association
  • Rent – rent for property used for your business
  • Retirement plans – savings plans that set aside money for your own or employees’ retirement
  • Taxes – federal, state or local taxes directly attributable to your business. That may include sales tax on business purchases, business real estate taxes, employment taxes
  • Trade show exhibits – cost of booth, meals, travel, fees

For More Information

The IRS offers a virtual workshop designed to help small business owners learn their tax rights and responsibilities. Some of the topics include: filling out tax forms, managing payroll taxes, and withholding the correct tax from employee wages. There are nine video modules that you can view in any sequence, on your time schedule.

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