Top 10 Tax Deductions for Small Businesses
To put a new twist on an old saying, there are only two things certain in business—change and taxes. Change can bring opportunity, but taxes are a drain on your bottom line. So what if you could find ways to minimize your tax liability and still pay your fair share? Then you could apply the money you save into growing your business. Got your attention? Then explore these tax deductions for small businesses to see if they might apply to you.
Before making any tax decisions, you should consult with your CPA or other tax advisor to determine what’s right for you. Your tax strategy should be a part of your business’s overall financial plan. Here are some money-saving tax deductions to discuss with your tax professional.
Top 10 Tax Deductions for Small Businesses
- Contract Labor – Outsourcing can be a smart way for small businesses to add staff without having to hire permanent employees. Payments to these individuals may be tax deductible. You will want to issue a Form 1099 to contractors to document your payments.
- Home Office – If yours is a home-based business, take a look at this deduction. It allows you to claim a fraction of home-related business expenses, like rent, mortgage, electricity, or insurance. The percent is based on the space’s proportion to the total square footage of your home. To be eligible, the space must be devoted exclusively to your business.
- Advertising and Promotion – The cost of ordinary advertising can be deducted as a business expense. That includes advertising costs like business cards, search-engine ads, or brochures. You can also deduct promotional expenses aimed at creating goodwill with the public. For example, sponsoring a local after-school program. Be sure to document the connection by having your business listed as the sponsor in the advertising.
- Education Expenses – Part of growing your business is keeping your skills current. This provision lets you deduct the cost of your own education (including related travel) related to your trade or business. This may include continuing education requirements to maintain a professional license or certification. It does not include the cost of initially meeting the requirements.
- Software – Does your commercial off-the-shelf software have a new update? Section 179 allows the cost of eligible software to be fully expensed in the year it was purchased instead of having to depreciate it over several years. Certain equipment is also eligible under this provision. It was created to encourage small businesses to invest in their infrastructure.
- Rent on Business Property – Seeking to avoid the costs of buying office space, some business owners, especially those in serviced-based businesses, elect to rent space. For example, hair stylists may rent a booth in an existing salon to conduct their business, which allows you to deduct this as a business expense.
- Credit Card Convenience Fees – These days, if you don’t accept credit card payments you’re likely loosing business. But it comes at a per transaction cost to offer it. This deduction lets you claim it as a business expense. And while you’re at it, take a look at these deductions on charges related to your own business credit card.
- Internet-related Expenses – High-speed internet is critical to delivering fast service to customers. Generally, you can deduct internet-related expenses like domain registration fees and web consulting fees. New businesses may need to amortize these expenses as start-up costs.
- Bad Debts – If someone owes you money and you cannot collect, you may be able to deduct the loss if it was incurred for business purposes. For example, it could be a loss on a credit sale to a customer or on a loan to a supplier, distributor, client, or employee.
- Gifts to Customers – If you give thank-you gifts to customers in the course of your business, all or part of the cost may be deductible. The deduction is limited to $25 per customer.
While taxes are an inevitable part of running a business, there are ways to better manage this liability. Consult your tax advisor to see if these tax deductions can help. Then you can take the savings and re-invest it back into the business.