5 Tax Deductions Small Business Owners Should Know About
Small business owners are the backbone of America. In fact, there are over 30.2 million small businesses operating in the United States. Being a small business owner can be challenging, though, especially in difficult economic times. One area that small business owners should pay close attention to is their taxes; per the IRS, the general rule is that if it is “ordinary and necessary” to run your business, then it can be deducted. Below, we outline five common tax deductions that you may not be familiar with and should consider taking advantage of.
Self-employment tax (SE Tax) is required to be paid by small business owners operating as a sole proprietor or independent contractor, a member of a partnership, or are otherwise in business for themselves (and not earning wages through a W-2). The Self-Employment Tax requires the owner to pay the employee and employer portions of Social Security and Medicare – and the employer portion (half the Self-Employment Tax paid) is an allowable deduction on the owner’s personal tax return. The amounts paid for this tax are governed by wage limits and calculated based on total earnings subject to the tax; as this can be a useful and sizable (but often complex) deduction, a CPA is an excellent resource for any questions regarding the process.
Marketing and Promotion
Effective marketing is essential for a small business; it doesn’t matter how amazing your product or services are if no one knows about them. The problem for a lot of business owners is that marketing can also be a major expense, especially when you consider all the different mediums most businesses need to be successful today.
The good news is that you can claim your advertising expenses as a deduction. This isn’t limited to physical marketing products (business cards, pens/notepads/mugs with your logo) either; deductible expenses can include advertisements on television, in print, and on social media, sponsorships of events, promotion through your website, and other digital marketing services as well.
Legal and Professional Services
Depending on the size of your business, you may be working with a variety of different professional service providers. These can range from CPAs to lawyers to business consultants; any service that you employ in the ordinary and necessary operation of your business is one that you can claim as a deduction.
Keep in mind that while the upfront costs may seem daunting, professional services can be excellent resources in improving your business operations and income production.
Home Office and Supplies
Are you working from a home office? If you have a dedicated room or area in your house used exclusively for business then you have the opportunity to deduct home office expenses including, but not limited to: rent, utilities, real estate taxes, repairs, maintenance, and other related expenses. Keep in mind that some of these expenses are deducted based on the square footage of your home office in relation to the entire home. Others, like office supplies and equipment used solely for the business, are 100% deductible.
Most businesses are required to hold some form of business insurance policy. The cost of insurance varies depending on the type of products and services the business provides (as well as other factors), but insurance exists to provide protection for both you and your business, and may be legally required.
If your company provides health insurance for its employees, this is considered a business deduction as well. If you are considered self-employed, the cost of you and your family’s (spouse and dependents) health insurance is not considered a business expense, but it is deductible on your personal tax return.
Getting the Most out of Your Small Business Tax Deductions
Paying too much in taxes ultimately means that you aren’t able to put that money back into your business, or into your retirement plan. To make sure your small business is taking advantage of all possible tax deductions, we recommend that you work with someone who has the experience and knowledge to assist you.
At Taurus CPA Solutions we provide tax planning, preparation, and consulting services in addition to year-round accounting services. Our goal is to build trusting and engaging relationships with our clients in order to provide exceptional service, strategic advice, and innovative financial solutions for you and your business.
Do you have questions or need a tax consultation? Give us a call today at 410-465-4600.