Critical Tax Deductions Small Business Owners Can Leverage In 2023

If you own a business, your gains are subject to taxes by the government. Business owners often lose a big part of their gains to income taxes.

Therefore, business owners need to understand how to identify tax deductions relevant to their field of work. Higher tax deductions for small businesses also equate to a faster tax filing process. This information is crucial for small business owners operating in a volatile market, as higher income tax bills lead to lower capital gains.

Let us go ahead and identify some of the most significant tax write-offs and understand how these write-offs can help business owners lower their income taxes.

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Why Take Advantage Of Tax Breaks?

Tax Break – Tax Deductions – Advantages

To make sure you’re not missing out on any extra cash, it’s important to know the advantages of applying for tax deductions. Let’s take a look at some of the key benefits and selling points you should consider:

Reduced Taxable Income: One of the primary advantages of claiming tax breaks is that they can help to lower your taxable income. This, in turn, can lower your overall tax bill and leave you with more money in your pocket.
Increased Savings: By lowering your taxable income, you can save a significant amount of money. For example, if you’re in the 25% tax bracket and claim $1,000 in deductions, you’ll save $250 on your tax bill.
Encourages Charitable Donations: Charitable donations are tax-deductible, and this can be an excellent incentive to donate more to charitable organizations. By giving to a cause you care about, you can help make a difference in the world and enjoy a tax deduction at the same time.
Promotes Homeownership: If you own a home, there are several tax deductions available to you, such as mortgage interest, property tax, and home office deductions. These deductions can help to make homeownership more affordable and incentivize more people to buy homes.
Deductions for Business Expenses: If you’re a small business owner, there are numerous tax cuts available to you, such as deductions for business expenses, depreciation, and startup costs. These deductions can help to reduce your tax bill and make it more affordable to run your business.

In terms of your finances, seeking tax deductions can prove to be a wise decision, allowing you to both keep more of your money and contribute to worthy causes. It’s crucial to seek advice from a tax expert to ensure that you’re making the most of all potential deductions that apply to your situation.

Tax Deductions For Small Business Owners

Tax deductions for small businesses

You can include several expenses in tax deductions to cut your income tax bills. However, these tax deductions need to be somehow linked to a business to avail deductions on income tax. Some of the top income tax deductions include:

1. Business Meals

You can show bills of food purchases and avail of a 50% deduction of the cost of food and drink if the meal was somehow related to your business. To establish this relationship, you need to document some of the details. These details include the date and place of the meal, in addition to its cost. It also consists of the other person involved in the meal with your business.

2. Business Insurance

You can write off business insurance costs from your tax returns, which can help you significantly reduce the small business tax. If you have an office at your home, you can deduct the insurance cost incurred by the renter from your tax returns.

3. Work-related travel expenses

If you are traveling outside your tax home, all payments you make on a business trip can be included in tax deductions for Small Businesses. The expenses included in this category are as minute as laundry bills to massive expenditures like airfare. To ensure that you can write off travel expenditures, you are suggested to spend more than one business day on tour and rest or sleep at least once during the entire span of the trip.

4. Expenses related to Home office

If you run your business from your home, you can deduct an amount from your tax returns. The amount that can be written off is calculated at a rate of $5 per square foot of your home office. This can be included in tax deductions for Small Businesses only if your home office spans less than 300 square feet.

5. Car/Vehicle usage costs

If you are driving a car to conduct processes related to your business, you can claim the costs associated with the maintenance and operation of the vehicle. However, in case you use a car to conduct business and for personal usage, you can only claim the cost of miles driven by the company.

6. Supplies for your office

You can also deduct the amount spent on buying supplies for your office from your tax returns. The stores you can list include pens, printers, paper, and other stationery items. However, the cost of these items can only be tax deductions for Small Businesses in the year they were purchased. Shipping and postage costs related to your business are also eligible for inclusion in tax deductions. You can also add phone and internet bills to the list of tax deductions for Small Businesses.

7. Salaries and Benefits

If you are a small business owner and you employ several employees, you can deduct their wages, benefits availed by them, and vacation costs from your tax returns. However, it is to be ensured by the business owner that the employee that is being paid a salary is not a partner or sole proprietor in the business. If the wages of employees that qualify are reasonable, you can include them in tax deductions for Small Businesses.

You can head over to ProfitBooks and avail of services to keep track of these expenses, thus allowing you to have more deductions in your income tax.

8. Business Expenses

As a small business owner, you can deduct the cost of advertisements and promotion of your business through print and digital media from your taxable income. Corporate and cultural events that you host for your clients and employees also require funding. The funding of these accounts can also be added to the tax deductions for Small Businesses that you can avail of.

However, you must establish the relationship between these expenses and your business. Failing this, one might not be able to claim tax deductions, consequently leading to higher income taxes. You can efficiently work on decreasing your business expenses by following these points.

9. Costs related to child and dependent adult care

If you have kids 12 years old or less, you can write off the expenses related to them as deductibles in your tax returns. In addition to this, if you have adults depending upon you that are physically or mentally unable to care for themselves, you can also include their expenses in tax breaks for Small Businesses.

10. Medical expenses

If you have health insurance, you can claim its premiums, in addition to the costs related to medical care under this category. These expenses include fees of Doctors, costs of prescription drugs, and other charges related to medical services. Medical expenses make up a significant portion of the costs for many individuals. Thus, you must document your medical expenses precisely to avail of tax deductions for Small Businesses.

11. Real Estate and Mortgage deductions

Property Tax Deduction – Mortgage

One can claim up to $10,000 as property taxes, including the taxes paid to the state or local authorities for real estate in the tax deductions for Small Business owners. Interest payments towards mortgage loans can also be included in these deductions if you use the loan to construct, repair or buy a house to operate your business out of.

12. Other investments that can be included in the list of deductibles

Investments made in educational courses, seminars, and subscriptions to publications that can help you enhance your business can be included in the deduction. Many other expenses can also be written off in your tax returns.

Tax Deductions For Small Business Owners: How They Work

Small businesses’ tax breaks reduce the total taxable income you acquire throughout the year. This, in turn, leads to a reduced amount of taxes to be paid to the government. It is suggested that you take professional help from an accountant to figure out your tax returns.

An accountant knows relevant tax deductions for small businesses to help small business owners and entrepreneurs lower their income taxes. However, all of the tax cuts do not allow 100% deductions.

Expenses like furniture bought entirely for official use, phone bills, and health insurance premiums for self-employed personnel are allowed 100% tax relief.

It gets hard to keep track of all the expenses related to a business. Every little transaction needs to be accounted for to file taxes accurately. Manual record-keeping of these expenses leaves space for error, and some costs might be overlooked.

ProfitBooks is good at keeping track of all the ins and outs of a business account, therefore making the process of filing taxes more manageable for you. Thus, ProfitBooks can help you effortlessly avail the relevant tax deductions for Small Businesses.

Find out how ProfitBooks can help you with your accounting needs! Create your account for free today.

Why Take Advantage Of Tax Breaks?