If you are a small business owner, finding out some standard tax deductions is certainly one of the best things that could happen to your business. As a startup, what you dread is incurring avoidable expenses. So if you are unsure of what tax deductions are and how it is important to your business, keep in mind that a tax deduction is simply a write off of some business expenses.
Knowing these tax deductions and knowing how to claim them is important, and since you are still reading, you are in luck to find out five common tax deductions for your small business. Additionally, you will get access to the ways you can ensure these deductions can be claimed.
1. Business meals.
As a small business owner, wouldn’t it be wonderful knowing that 50% of the food and drink purchases made on the company account can be written off? Nothing could be this good! With these deductions in food and drinks, you will find it helpful knowing some of the rules in getting this through, right?
So, here are the conditions for eligibility.
- The meals and beverages bought must relate to your business, a meal that is deemed necessary as part of the business or work you are undertaking. For example, you can get a pizza for your staff and you while at work, especially when you all are working late and not some extravagant meal but just a necessary and fitting meal.
- The additional expenses must be moderate and necessary part of the business to be legible for the deductions.
- As a business owner, you must be present at the time of order and delivery of the food to claim the deductions.
- Meals for office parties and dinners earn 100% deductions too.
- However, you must ensure comprehensive documentation of these expenses to claim the tax deductions. Details like the date, meal/drinks, purpose for the dining, location, and the people present and stating their relationship to the business. Where are you hosting your business partners or your company’s AGM? Include the agenda for the meeting in the receipt as well. So, you need a good bookkeeper to ensure these vital details are not missed.
2. Business vehicles.
Your means of mobility is of utmost importance, and the government understands that which is why you can be grateful for the write-offs you will enjoy. But here are a few points to note.
- If you are using your car for your business and personal use, you must limit your tax documentation to the business only. Here is how to achieve that.
- Keep track of the expenses used in the purchase of gas, insurance, maintenance, lease payment, registration, and other daily car concerns. When you have gotten the figure, multiply it by the percentage of the car mileage used during business hours yearly.
- To make this easy, you need to get an app that tracks miles and keeps track of the miles covered during business rounds. You can also monitor your business mileage using the business log/appointment register and calendars. You can also document the business mileage by keeping a mileage register, including the time, day, and purpose of the trip(s).
3. Further education
While in business, you will always have reasons to upskill yourself, then there is good news as long as the skill acquisition relates to your business. The IRS will always look out for these skills and allow a write-off as long as it makes you better in the niche you are practising. Keep in mind that if the upskill earns you a new job in another niche, you may not be having a tax write-off. For a better understanding of skill tax deductions, here are the areas that matter.
- You are legible when the classes revolve around your business. You could take a copywriting class or scripting classes if you are a freelance writer and not a masters’ class in cooking or stock trading.
- Transportation to and from the places of study. If your courses don’t have virtual classes options, your school trips can be taken care of.
- Seminars, webinars, and other forms of virtual classes. Remote learning has come to stay, and you can be thankful for some tax care in this regard.
- Books and journals necessary to your business. Whatever skill you are willing to acquire, you can hope for some tax deductions and get as much knowledge as your niche demands.
4. Travel deductions.
Making trips is part of everyone’s regular activities, and for business owners, you can have some tax taken off you when you embark on business trips. Sometimes, you will have to travel for a business deal to click, and part of the expenses can be covered through tax deductions.
However, here are some areas to keep in mind if you want your business trips to attract tax deductions.
- To qualify, your trip must be away from your tax coverage. This means tax deductions will only apply to business trips taken outside your city/place of operation. And the trip requires a sleepover for a day or more.
- The trip is taken with an aeroplane, bus, train, or car.
- Your parking and toll fees are legible too.
- The transportation costs of other means of transportation used in the course of the trip are covered.
- Business calls, dry-cleaning, tips, meals, lodging, and everything used during the trip are eligible for tax deductions.
Nevertheless, you need comprehensive documentation of the receipts of these expenses for a proper tax deduction.
5. Salaries and other benefits.
For a small business, you have the benefit of writing off the salaries, some official benefits, etc., of your employees. doesn’t that sound great?
But you must ensure they meet the following conditions
- The said salary mustn’t be excessive but realistic and fair
- None of the employees must be business partners, sole proprietor, or LLC associate in the business
- The employees have rendered the services assigned to them respectively.
Conclusion
Extra money is always welcome for any business. This is why understanding tax returns/deductions will help you avoid unnecessary costs. You can work with an accounting expert to ensure you’re making the right deductions. A helpful tip is knowing how these numerous tax deductions work, and with this, you will never miss a tax return again.