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Tax Deductions for Businesses

Whether you own a large, global business with millions of employees and a wider reach than the average human . . . or if you’re the lone proprietor of a small business, you might be eligible for tax deductions.

In the United States, businesses of all definitions are allowed to lower how much they owe in taxes, but only in certain circumstances. Because the circumstances are so specific, however, it can be easy to miss out on potential ways to save your business – and yourself – money.

Read on to learn about some common tax deductions for businesses that you might be able to adopt.

What Are Tax Deductions?

A tax deduction is a deduction that lowers a person’s or an organization’s tax liability by lowering their taxable income. Deductions are typically expenses that the taxpayer incurs during the year that can be applied against or subtracted from their gross income to figure out how much tax is owed.

To put it in simpler terms, this means that you can pay upfront costs throughout the year that you can then apply against your annual income to decrease the amount of money you can claim you owe.

Although there are many different types of deductions, this article will briefly go over a few of them to give you a better sense of what you might want to research/what might be pertinent for you.

Types of Tax Deductions

Self-Employment Tax Deduction

This is the type of tax that refers to how much money self-employed individuals have to pay to handle Medicare and Social Security taxes. Expect to pay a tax rate of 15.3% (which comes from 12.4% for Social Security and 2.9% for Medicare). Employers and employees also share the self-employment tax (each pays 7.65%).

The self-employment tax will cost you less than you might think, however, because you get to deduct half of your self-employment tax from your net income!

Home Office Deduction

The cost of any workspace that you use regularly and exclusively for your business (owning or renting) can be deducted.

Internet and Phone Bills Deduction

You can deduct the business portion of your phone, fax, and Internet expenses. But only your business expenses – personal data that is tied to your business account can’t be deducted.

Health Insurance Premiums Deduction

If you are self-employed, pay for your health insurance premiums, and are not eligible to participate in a plan through your spouse’s employer, then you can deduct all of your health, dental, and qualified long-term care insurance premiums.

Meals Deduction

A meal is a tax-deductible business expense when you are traveling for business, at a business conference, or entertaining a client. In the past, you could only deduct 50% of the meal, but thanks to COVID-19, there’s a temporary amendment in place that allows for 100% deduction (until 2022).

Travel Deduction

If you want to deduct your travel, you have to make sure that whatever business you’re doing lasts longer than an ordinary workday, requires you to get sleep or rest at the destination place, and takes place away from the general area of your tax home. You also must have a specific business-related reason planned for the trip.

Your travel expenses for business are 100% deductible, except for meals, which are limited to 50%.

Vehicle Use Deduction

When you use your car for business, your expenses for those drives are tax-deductible. Just make sure to keep great records!

Interest Deduction

Interest on a business loan from a bank is a tax-deductible business expense.

Publications and Subscriptions Deduction

If you have magazines, journals, or books that are related to your business, they count as supplies and materials . . . making them tax-deductible.

Education Deduction

Any education expenses you want to deduct must be related to maintaining or improving your skills for your existing business.

Business Insurance Deduction

If you pay insurance for business protection (credit, car, fire, etc.), you can deduct your premiums.

Rent Deduction

If you rent out an office space, you can deduct the amount that you pay for rent. You can’t deduct rent expenses on any property that you own, even partially, however.

Startup Costs Deduction

You can deduct up to $5,000 in startup costs (only in the first year of activity).

Advertising Deduction

Any advertisement you use to draw attention to your business can be deductible!

Retirement Plan Contributions Deduction

You can deduct money spent for self-employed retirement plan contributions.

Keep these in mind and try to save some money when it comes to your business.

Guardian Tax Law

310 S Williams Blvd, Ste 260 Tucson, AZ 85711

(520) 485-7371