Small Business Tax Deductions / Write Offs

October 8, 2017

 

As a business owner you need to pay attention to taxes throughout the year, not just at tax time. It is important to know the rules and requirements. You also need to get yourself organized, keep records & receipts.

You can also hire a professional to help you! The fees you pay are probably less than what your time is worth, are tax deductible, and probably worth the stress you won't have to deal with. And who knows... you may just gain a client as well as referrals from the accountant?!

 

 

NOTE: I am not a tax/accounting or legal professional! These are tax deductions I researched on the www and found may benefit our type of businesses (furniture painters; shop owners, booth renters, & those who work from home) within the US. There may be some you can not use, or more that you can take advantage of.

 

Tax Deductions;

 

Salaries and Wages 

 

 

 

 

While payments that sole proprietors, partners, and LLC members take from the business are not salaries (they are nondeductible draws), payments to employees are deductible.

 

 
 
 
Contract Labor 
Many small businesses use independent contractors to meet their labor needs. The cost of such contract labor is deductible. Be sure that you issue Form 1099-MISC to any such contractor receiving $600 or more from you.
 

NOTE: Contractor labor costs are deductible. Your sweat equity is not.


NOTE: If you perform Repairs on customer(s) property, check with your state to see if your labor is tax deductible.

 

Rent on Business Property 
 
 
 

The cost of renting space — an office, storefront, factory, or other type of facility — is fully deductible.

 

 
 
 
 
 
 
 
 
 
Depreciation

 

 

This tax deduction for small business is an allowance for the cost of buying property for your business. It includes the Section 179 deduction for equipment purchases up to $500,000. It also includes 50% bonus depreciation.

 

 
 
 
 
 
Supplies 

 

 

Items used for business (e.g., paint, brushes, stencils, cleaning materials, etc.) are fully deductible.

 

 
 
 
 
 
 
Utilities

 

 

 

 

 

Electricity for your facility is fully deductible. Other utility costs include your cell phone charges. If you claim a home office deduction, the cost of the first landline to your home is not deductible. If you have a second line, it is a deductible utility cost.

 

 
 
 
 
 
 
 
 
 
Car and Truck Expenses

 

 

Most small businesses use a vehicle, such as a car, light truck or van. The cost of operating the vehicle for business is deductible only if there are required records to prove business usage. In deducting costs, the need to keep records of cost (e.g., gasoline, oil changes) is eliminated if you rely on the IRS standard mileage rate instead of deducting your actual outlays.

 

 

The IRS mileage rates for 2017 for the use of a vehicle are:

  • 53.5 cents per mile for business miles driven, down from 54 cents for 2016;

  • 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016;

 

 

 

Taxes

 

 

Deduct state and local sales tax you charge on your goods and services; the amount you collect from your customers is part of your gross receipts, so this deduction is merely a wash.

You can also deduct licenses and regulatory fees and taxes on real estate and personal property.

Your employer taxes, including the employer share of FICA, FUTA, and state unemployment taxes, are fully deductible.

However, for self-employed business owners, the deduction for half of your self-employment tax is not a business deduction; it is an adjustment to gross income on your personal income tax return.

 

 
 
 
 
Repairs

 

 

 

The cost of ordinary repairs and maintenance are fully deductible. However, costs that add to the property’s value must be capitalized and recovered through depreciation (although there are some exceptions).

 

 

 

 

 

 

 

 

 

NOTE: If you perform Repairs on customer(s) property, check with your state to see if your labor is tax deductible.

 

 
Insurance

 

The cost of your business owner’s policy and business continuation insurance is fully deductible. However, there are two rules to note for health coverage. A small business may qualify to claim a tax credit for up to 50% of the premiums (a better tax break than a deduction). Also the cost of health coverage for self-employed individuals and more-than-2% S corporation shareholders is not a business deduction. Instead, the premiums are deducted on the owner’s personal tax return.

 

 
 
Commissions

 

 

 

They are fully deductible. In some cases, vendors who sell their wares in consignment shops, flea markets or who lease space from an existing retailer are required to pay a portion of sales to the owner of the facility as a commission.

 

 
 
 
 
 
 
Advertising

 

 

 

 

 

Ordinary advertising costs are fully deductible. (Ex. Newspaper Ads, TV or Radio Commercials, etc.)

NOTE: This does not include your time to advertise on social media.

 

 
 
 
 
 
 
 
 
 
 
Travel

 

If you or staff members travel out of town on business, the cost of transportation (e.g., airfare) and lodging is fully deductible. You must meet substantiation requirements explained in IRS Publication 463 to claim any travel deduction. However, local commuting costs usually are nondeductible. (See Car and Truck Expense Above for mileage.)

NOTE: This does not include your time.

 

 
 
Home Office

 

A portion of personal expenses of a home are deductible as a business expense if the home is used regularly and exclusively as the principal place of business, a place to meet or deal with clients or customers, or as a separate structure used in the business. The deduction includes both direct costs (e.g., painting a home office) and indirect costs (e.g., the percentage of rent or mortgage interest and real estate taxes that reflect the percentage of business use of the residence).

 

 
 
 
 
Legal and Professional Fees

 

 

 

Legal and accounting fees are fully deductible.

 

 
 
 
 
 
 
 
 
Rent on Machinery and Equipment

 

Fees paid to lease or rent items used in your business are fully deductible.

 

 
 
 
Interest on Business Indebtedness

Interest on loans that the business takes usually is fully deductible as a business expense (e.g., interest on a line of credit used in a construction business). However, it’s a different story for loans by owners. Distinguish business interest from an owner’s investment interest or passive activity interest, which is not a business deduction. For example, an individual who takes a personal loan to buy shares in an S corporation must allocate the debt proceeds to the business assets. If the assets are all used in the business, then the owner’s interest is deductible business interest. If some assets are investments, then a portion of the interest is investment interest. If some assets relate to a passive activity, such as rental realty, the allocable interest is passive activity interest.

 

 
Mortgage Interest

 

 

Businesses that own reality can fully deduct mortgage interest. Unlike interest on a personal residence, there is no cap on the size of loans on which interest can be claimed.

 

 

 

 

 

DID YOU KNOW...

There's additional deductions for "Small Business"? 

(Small meaning having gross receipts of no more than $1 million in the preceding year or no more than 30 full-time employees.)

 
 
 
Disabled Access Credit

Small businesses that retrofit their space to accommodate the disabled can take a tax credit that amounts to $5,000. 

 

First-Year Expensing

Instead of depreciating the cost of equipment and machinery, a small business can opt to deduct the cost in full up to a set dollar limit. 

 

 

 

 

Conclusion 

 

You need to decide which Tax Deductions are right for you/your business.

There may be more but these are the ones I could think of that would benefit our type of business within the US.

You may want to research further & or contact a professional.

Again, I am not a tax/accounting or legal professional.

However, I can offer advice; get organized, keep detailed records & all receipts.

 

 

 

 

 

 

 

 

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