Small businesses pay an average of 19.8 percent on income after deductions. This is why it’s important that you maximize your tax deductions.
Plan accordingly and you can start preparing for your taxes now. Don’t give Uncle Sam more than you should when it’s time to pay your taxes.
Check out this list of the top 2018 tax deductions for small businesses.
1. Vehicle Usage
Keep records of your vehicle use such as gasoline, parking, tools, and maintenance. You can also use the standard IRS mileage rate, which is up in 2018 to 54.5 cents per mile.
2. Rent or Mortgage on Your Office Space
If you own your building, you can deduct your mortgage interest. The difference for a commercial space is that there is no cap on the loan size for claiming interest.
You can also deduct your monthly rent if you do not own your space.
3. Home Office Tax Deductions for Small Business
If you run a portion or all of your business from your home, you can deduct the devoted space. The word devoted is key.
To calculate your deduction, take the total square footage of your home and divide by the space used for your business. This is the percentage you will use to calculate all your expenses including utilities, rent, insurance, etc.
Take a look at the IRS information on this deduction before you file your taxes. It can be rather complicated, so you may want to discuss with an accountant.
4. Salaries and Wages
You can deduct the salaries and wages of your employees. If your company is registered as an LLC or you are a sole proprietor, you may not be allowed to deduct your own income from your business.
You can also deduct more than the standard wages including bonuses, allowances, employer-paid taxes, and commission pay. Payroll software is another eligible tax deduction.
You can also claim all your other employee benefits such pension, education reimbursement, and profit-sharing.
5. Work Opportunity Tax Credit
Do you employ any military veterans or others who have been unemployed for long-term? You may be eligible for a Work Opportunity Tax Credit, which is 40 percent of the first $6,000 in salary payment.
You can deduct taxes, but this can be rather tricky depending on the type of tax. For example, you can subtract licenses, fees, and taxes on owned real estate.
Other types of taxes you may be able to deduct include:
- Sales taxes
- State unemployment taxes
You cannot deduct your portion of the self-employment tax on your business deduction.
7. Client and Employee Entertainment
You can make deductions for client and employee entertainment including meals, events, and other entertainment.
Here are a couple guidelines on these deductions:
- You can deduct the entire cost of social events for employees
- You can deduct up to 50 percent of client meals and entertainment as long as one employee was present
- If pay for your team’s lunch or dinner, you can deduct the entire cost
Note that you must discuss business.
The business insurance premiums are tax-deductible. These types of insurance could include:
- Commercial auto (vehicles used in your business)
- Business owners’ Policy
Please note that this insurance must be necessary to your business.
You cannot deduct life insurance. Health insurance also has a couple of specific circumstances.
Small businesses may be eligible for a tax credit no more than 50 percent of the health insurance premiums. The cost of health coverage of the self-employed is not a business deduction but a deduction on the individual’s personal tax return.
If you purchase new capital equipment for your business such as a commercial coffee brewer for a coffee shop, you can get a tax break on depreciation tax. This lets you deduct 40 percent of your costs at purchase. This is down from the 50 percent in previous years.
There are a few items you can’t claim depreciation on including land, HVAC units, and inventory.
10. Office Supplies
You can deduct supplies you need to run your business like napkins for a pizza shop. If you don’t have a traditional shop, you can also deduct expenses such as postage, delivery services, paper, and more.
Computer software, including your POS system, can now be deducted at full cost.
The expenses you pay each month such as electricity and gas can be a tax deduction. You can also get a break for mobile phones and landlines.
12. Travel Expenses
If you travel to business conferences or tradeshows related to your business, you can take a deduction on all your expenses for travel including airfare, meals, hotels, and car expenses.
Other deductions you can make include shipping your items to a show, costs of phone calls, tolls, and parking charges. You can even claim your cab ride and tip to the driver.
If you traveled to a seminar or workshop, you can deduct the cost of the class. It must be related to your job, such as improving a special skill or renewing a professional license.
If you paid a vendor or employee before receiving a service, you can classify this as a bad business debt deduction.
You must have tried to collect this debt with reasonable effort and for a certain amount of time before you can claim. You also must have included this owed amount in previous gross income.
Your business won’t survive if people don’t know about it. This is why advertising is important for you to succeed.
Any money you use to advertise can be deducted such as business cards, billboards, ads, and brochures.
The only exception is political advertising.
If you support a charity with your small business, there is a deduction for the costs.
You can deduct supplies and money donated to a known charity. However, donations of time do not count toward this deduction.
Don’t Let Taxes Overwhelm You
No one knows taxes better than an accounting firm, such as The Curchin Group. Accountants can help you maximize your tax deductions for small business and keep money in your pocket.
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