As you know if you’ve ever filed personal taxes before, a tax deduction is a decrement of taxable income. If you’re starting up a small business, you’re going to be focusing on making as much profit as you can, and taking advantage of business tax deductions can be a big help towards that. Unfortunately, a lot of business owners, especially new small business owners, don’t know about some of these deductions. Here are some you should keep in mind when it’s time to file.
Startup Costs
The expenses you pay when starting your business count as a tax deduction. These expenses include any that were involved in creating, launching, or organizing the business. For example, legal costs involved in setting up your business as a legal entity would count towards your deduction. There are some limits on this, though. You only get this deduction if your business startup expenses were $50,000 or less, and you only get a $5,000 deduction. However, this can still make a big difference for many new business owners.
Charitable Contribution
You can deduct charitable contributions as long as your donation was to a qualifying organization. There are several different types of corporate donation opportunities that you can deduct on your business’s tax returns. These are cash gifts, property, or travel expenses.
In most cases, you can deduct up to 50 percent of your adjusted gross income for cash or property donations. However, for some organizations, you can only deduct 30 percent. There are some donations that won’t be counted at all. These include gifts to individuals, for-profit schools, and politicians. Travel costs may be deducted at a rate of about fourteen cents per mile, if you traveled for the organization.
Bad Debts
All businesses will incur bad debts at some point. This would be money that you are owned by a client or organization that you can’t collect. According to the IRS, bad debts might include things like unpaid credit sales, or unpaid loans. To deduct this, you must be able to prove that the debts are worthless, which means that it will likely never be repaid. You should be able to show that you took reasonable action in trying to collect the debt.
Health Insurance
You can also deduct health insurance from your taxes if you’re paying it through your business. In fact, you can deduct this even if you’re self-employed and paying for your family’s insurance plan. There are several different types of categories of health insurance plans that cater to smaller businesses, so you and your employees have options. This is one of the most frequently missed deductions, so take advantage of it.
Education and Training
If your business is paying for an employee’s education, you can claim a tax deduction. Through an educational assistance program, you can provide $5250. However, if you give your employee more this amount, this assistance must be considered wages and will be taxed as such. You can also write off other types of training for your employees. This education must be directly related to your business and may include expenses incurred during workshops, conferences, trade shows, or similar types of train.
These are some of the tax deductions that small businesses often overlook. To increase your new business’s profits, take advantage of these and other tax deductions. Contact a tax advisor to learn which tax deductions you are eligible for when filing.
