- Every small business owner has to take advantage of the best tax deduction.
Are you concerned with the absurd amount of taxes your business pays or might pay in the future?
If so, you have to consider the various tax deductions for business owners. Your business can’t scale unless you have enough capital to sustain yourself. This is why following the right finance tips as a self-employed professional is so important.
The tax burden and complex tax laws are what hold most businesses back from staying afloat. Luckily, you don’t have to stress any longer about your company’s finances.
Here are the best tax deductions for business owners. You will have an easier time taking advantage of them if you have the right accounting software.
1. Travel Expenses
If you’ve traveled at all during the past 12 months, you might be able to use these travel expenses as a tax write-off.
These travel expenses can include accommodation, flights, and any expenses during your trip.
However, the trip must be crucial for your business. It has to meet the following conditions to qualify:
- It has to be in a location away from your tax residence
- You can’t use a location within your city
- The trip has to be longer than your normal workday
- You have to stay overnight at this location
If you travel often for business, make sure you keep records of this. You might significantly reduce your tax burden as business expenses can be quite high. You should also look into a service to outsource your tax preparation and keep track of business expenses.
2. Business Insurance
If you have business insurance you can use this as a deduction on your tax return. You might also be able to use renter’s insurance as a write-off if you use your home as your office.
If you don’t have business insurance, you should consult your lawyer on the ideal insurance for your company.
3. Phone and Internet
If you use your phone and internet connection for your business, you can use this as a tax write-off.
If you use either for personal reasons as well, you can only write off the percentage that you use. This can be a great challenge so you might want to consider a separate phone and internet connection for your business.
4. Professional Services
Any professional service that you use for your business can get used as a tax deduction.
Professional services can include accounting and legal services. These are essential services that your company needs to operate. These are always third-party services.
You want to always check with the IRS on the guidelines for using professional services as a tax write-off.
5. Interest Fees and Bank Fees
If you’ve had to pay interest from a business loan you can use this to deduct your taxes. Any bank fees can also get used as a tax write-off.
Make sure you keep records of your loans and the interest charged on them. Keep copies of your bank statements if your bank charges bank fees.
6. Salaries and Bonuses
If you run a business with employees, you can use their salaries and bonuses as tax deductions.
You have to prove that the employee isn’t a freelancer or partner in the business. You’ll also have to show that the salary was necessary for the services provided.
7. Charitable Donations
Has your company made donations to charity or a cause? You can use this as a potential tax write-off.
If you make donations to charity, make sure you always make them in the name of your business. You want to always keep a receipt for proof of donation.
8. Education Expenses
Education expenses that are crucial for your business operations can get used as tax write-offs.
These expenses should be for education that teaches you new skills related to your business. Or, you can use education for continued professional expertise as a tax write-off.
Education expenses can include the following:
- Classes related to your profession
- Books and other materials related to your industry
- Trade publications
- Seminars, webinars, and workshops
Make sure you keep track of all receipts for education purchases. This might be one of the best ways to reduce your tax burden.
9. Foreign-Earned Income Exclusion (FEIE)
The Foreign-Earned Income Exclusion (FEIE) is a great option for Americans who live abroad and conduct their business in a foreign country.
You have to first prove that your tax residency is in a foreign country. There aren’t any set rules on this and it all depends on your situation.
As a general rule, you’ll have to spend at least 330 in a foreign country to qualify. You’ll also have to earn foreign-sourced income under a certain threshold to eliminate paying income tax. You’ll also have to check if the foreign country has a tax treaty with the USA.
This is a rather complex deduction so you’ll want to consult your accounting service first. However, if you earn a six-figure income while living abroad you want to see if you qualify.
Americans abroad still have to file tax returns and possibly pay tax to the IRS and the foreign country. The FEIE is a great way to reduce or eliminate this tax burden.
10. Client and Employee Entertainment Deductions
If you take your clients or employees out for entertainment, you might be able to deduct this from your tax obligations. Depending on the situation, you might get to write off between 50% to 100% of your expenses.
You must discuss business during these entertainment sessions. For example, if you take a client out for lunch it can only be considered a write-off if it’s for work purposes.
Any event for clients and/or employees can also get used as a tax deduction. These can include award ceremonies, galas, press conferences, etc.
Those Are the Tax Deductions for Business Owners
Now that you know these tax deductions for business owners, you can work to reduce your tax obligations!
Taxes are inevitable but one should always look to legally reduce their tax burden to propel their business forward.
You can write off expenses such as travel, education, salaries, and employee entertainment. Make sure you hire a professional tax service to help you with this process.
You should also always keep receipts of purchases in case of an audit. Make sure you always stay compliant.
You can find more great business tips on our website!