Taxes can take quite a bite out of a business’s earnings. How can you reduce taxes on your small business? Tax deductions.
Businesses pay taxes on their net income (defined as gross revenue minus expenses). A tax deduction is a subtraction from your business’s taxable income. Business expenses are generally tax deductible, as long as they are “ordinary and necessary,” as defined by the IRS. Expenses that are common in your industry, and help your business grow, are generally considered eligible deductions.
There are many categories of deductible small business expenses. Examples include:
Mileage
Travel between offices, clients, meetings and work-related events can be deducted per mile driven or based on actual expenses. The IRS 2022 standard deduction rate started at 58.5 cents per mile, and was increased to 62.5 cents per mile for July 1 to December 31 to respond to increased fuel prices. Generally, you cannot claim mileage incurred while driving from your home to an office, unless you have a home office and an off-site office, in which case that is technically considered travel for business.
Travel
Business travel costs like flights, trains and hotels are tax deductible. Additionally, businesses can claim up to 50% of meals provided to employees or purchased during business travel.
Office Supplies and Expenses
Office supplies like printer ink and toner, notebooks, pens, paper, paper, snacks for a break room and cleaning supplies are deductible.
Rent and Utilities
Tax deductible office expenses include costs like rent, utilities, computers, internet fees and employee cell phone expenses.
Labor and Payroll
The cost of hiring staff and contractors, running payroll and continuing education is tax deductible.
Operation
Standard operating costs are deductible business expenses, including insurance costs, web development, subscriptions, and interest on a business loan. You can also deduct the cost of using professional financial services like an accountant, tax preparer or financial advisor.
Personal and Business Expenses
If you use a space or item for both work and personal use, you can typically deduct a percentage of that expense. For example, if you use your cell phone for work 10% of the time, you can deduct 10% of your cell phone bill. The same is true for utilities in a home office that is used 100% of the time for business.
Other expenses that are tax deductible include:
- Licenses and permits
- Advertising and promotions
- Business insurance
Ineligible Small Business Expenses
Examples of expenses that are not eligible for deduction include:
- Most education, except for certificates and other degrees necessary for your work
- Personal or family expenses
- Commuting between your place of work and home
- Start-up costs exceeding $5,000 are not deductible, however they can be depreciated over 15 years.
Tips to Saving Money with Deductions
Hire a Financial Advisor and Tax Preparer
One of the best things you can do for your small business is hire a financial advisor. An advisor will discuss your goals, set up a plan and help you make the most of your profits.
Track Your Expenses
Make sure you keep track of every single thing you spend money on for your business. Keep a detailed record of every transaction, receipt, bill and expense. Use a platform like QuickBooks or or even keep your records in a spreadsheet — anything that will help you track your money.
Get the Most Out of Tax Time
To get personalized advice and maximize your tax deductions, contact Gift CPAs to learn more about our tax preparation and planning services.
We have years of experience working with local small businesses to help with bookkeeping, taxes and other business needs. Make an appointment to meet virtually or at one of our five locations in Harrisburg, Mechanicsburg, Myerstown, Ephrata or Lancaster!
