When you are new to the field of small business, it is better to check the tips and tricks for small business before filing your tax returns. Let us discuss, the top tax deductions for small businesses that can be claimed by the sole proprietors. Similar claims can be applied by other entities like S corporations, C corporations, partnerships, and Limited Liability Companies (LLCs). But there is a slight difference in the rules for some tax deductions.
Top Tax Tips for Small Business
Expenses of Car and Truck:
Most of the small businesses are dependent on vehicles like truck, van, or car for certain purposes. The cost of operating such vehicles for the business purpose is deductible when it proves the business usage. In such a case, the concerned person relies on the standard IRS mileage rate of 53.5 cents per mile, instead of deducting the actual outlays.
Many small businesses employ independent contractors to carry out their works. Here the cost of the contract labor is deductible. When you use a contractor for your small business you must issue Form 1099 MISC to the employee if he or she receives a payment of $600 or more. If the employee payment is settled through credit card then it is up to the processor to issue them Form 1099 K. Anyway you need to send your own 1099 MISC for personal protection.
Supplies & Utilities:
The items that you use for your small business such as cleaning supplies are fully deductible. The electricity that is utilized by your small business is also deductible. The utility cost covers your cell phone charges. The cost of the first landline to your house is not deductible when you claim a home office deduction. But the second line comes under utility cost deduction.
State & Local taxes:
The state and local taxes are deductible that you charge on your goods and services. The amounts you receive from the customers contribute as a part of your gross receipts, and so this particular deduction is a clear wash. You can deduct license and other regulatory fees and taxes on personal property and real estate. On the other hand, for self-employed business owners, half of your self-employment tax is not actually a business deduction. It is considered as an adjustment to gross income on your personal income tax.
Commissions & Advertising:
In general, commissions and ordinary advertising costs come under the fully deductible tax category. So it is wise to invest in advertising as it can help in growing your small business and importantly it is deductible.
When you or your staff members travel out of town related to business purposes, then the cost of transportation and lodging is fully deductible. In order to claim any travel deduction, you must meet the substantiation criteria explained by the IRS Publication 463. However, the cost of sightseeing or other local commuting is nondeductible.
Employee Benefit Programs:
The costs of employee benefits programs like education and dependent care assistance; contribution to employees qualified retirement plan accounts also come under the deductible tax. But when comes to self-employed individuals, contributions to their own qualified retirement plan accounts are personal deductions claimed on Form 1040.
If your small business owns realty then the mortgage interest can be fully deductible. Note that there is no cap on the size of loans on which interest can be claimed, unlike interest on a personal residence.
You must know that the policy cost of the business owner, business continuation insurance, and malpractice coverage is fully deductible. But still, there are two rules to note for health coverage.
The cost of simple repairs and maintenance that are related to your small business is fully deductible. But when the repairs made add value to the property must be capitalized and recovered through depreciation. But there are few exceptions too.
Home as Business Office:
When you are using a portion of your home as the principal place of your business regularly, then the cost related to the home expenses are deductible. Here the deduction includes both the direct and indirect costs like percentage of the rent, painting home office, and real estate taxes.
Meals and Rent on Machinery:
The cost of business lunch organized by you can be deductible up to 50%. And this deduction is claimed only if you substantiate the expense. Note that the fees you paid to lease or rent any machinery which is used for your business are fully deductible.
On the whole, it is wise to determine which of the above tax deductions for small businesses on the list you pick and file your business return.