A small business or pass-through business owner is the one that has to report the company’s taxable income on their individual reports.
The taxes owed by pass-through entities can be as much as 37 percent of their income.
Thirty-seven percent sounds like a lot, but small businesses can compensate for this by subtracting money spent on operating costs from their taxable income.
These reductions are called business tax deductions, and they allow you to pay fewer taxes. Visit Asenaadvisors.com.
You might be wondering what counts as a business tax deduction. Read on if you’re curious.
Home Office
Running a small business from your home office offers plenty of tax exemptions. However, the catch is that it has to be an actual office or at least a close approximation.
If you have a specific area of your den where you work and nothing else, it counts as an “office.”Working on your tablet from bed doesn’t count. The office also has to be your primary place of business.
Currently, only freelancers and otherwise self-employed people qualify for home office deductions. You can still be eligible for a partial deduction if you worked from your office for a few months.
As for what counts as deductible expenses:
- Office furniture
- Home repairs and maintenance
- Utilities
You can consult this list for more home office deductibles.
Marketing
It stands to reason that as a business owner, you’d need to advertise your services. According to the tax code, you can take fees incurred for advertising and promoting yourself from taxable income.
Marketing deductions include:
- Consultation fees
- Website development
- Printed advertisement (business cards, pamphlets, brochures)
- Email advertisement
Any advertising costs spent during personal events cannot be deducted. Inviting potential clients to a party you’re hosting can’t be taken from your taxable income.
Health Insurance
Hospital and doctor’s office visits can be expensive. Luckily, health insurance counts as a kind of tax break for small businesses and self-employed people. Any out-of-pocket premium may count as deductible from taxes.
The great thing about insurance tax breaks is that your entire family’s medical costs are deductible also. The following list includes tax-deductible procedures:
- Acupuncture
- In-patient hospital care
- In-patient drug and alcohol rehabilitation
- Seeing doctors, dentists, chiropractors, psychologists, and psychiatrists
- Nursing home care (if the patient lives there for medical reasons)
Health insurance is the most often missed deductible on this list. You can visit linkedin.com/company/wealthability/ for more information about other tax information you may have missed.
Wages and Payroll
You might be surprised by the benefits being a business owner who’s also an employee can bring.
If you opt for paying yourself a wage instead of a dividend, you won’t have to deal with self-employment taxes on your return. Meanwhile, the business itself handles the payroll tax return.
Startup Costs
It’s possible to get tax exemptions for startup costs as well. Anything that contributed to the creation of the business before it began can count as startup deductions.
Usually, a business owner can see up to $5000 in tax reductions. Startup deductions include:
- Opening advertisements
- Pay for employees in training
- Travel costs for establishing customers, suppliers, and distributors
Startup deductions have to count as absolutely necessary and relevant to your business.
Understanding Business Tax Deductions Is Important
Tax exemptions are something all business owners should know. Hopefully, this list of business tax deductions will help you save money come next tax term.
If you’re curious about more business and finance topics, here are more articles to browse.
