Small Business Tax Deductions
Small Business Tax Deductions
Being a small business owner has its challenges and rewards. Business tax deductions can be both. While many tax deductions are available to small businesses, it requires both knowledge and commitment on the part of the business owner or a business tax professional to keep up with what deductions are available and apply them to their maximum advantage. To do otherwise, automatically means that the business will be paying a larger tax bill than they would otherwise need to pay. Some of the common business tax deductions are discussed below.
Office Supplies – The purchase of office supplies represents a tax saving opportunity for small business owners since expenditures on these items can be used to offset taxable business income. However, as with all business tax deductions, it is important to document both in-store and online purchases by saving all receipts.
Large Equipment – Most small businesses need certain pieces of equipment in order to operate. Because such items are usually costly and their cost can be deducted from the income of the business, their purchase represents a significant business tax savings. With respect to such large equipment purchases, new tax deduction guidelines have been instituted in recent years regarding the purchase of copiers, fax machines, scanners, computers and credit card machines. The new guidelines offer business owners a choice. They can choose to deduct one hundred percent of the cost of these items in the year of the purchase or depreciate it over a five year period. Determining the best option may require the services of a business tax professional as it depends on the current and projected income of the business, among other things.
Office Furniture – The purchase of office furniture represents a business tax deduction very similar to that which is allowed for the purchase of large equipment. One hundred percent of the cost can be deducted in the year of the purchase or it can be depreciated over a seven (not the five year period used for equipment) year period.
Subscriptions and Software – The purchase of subscriptions and software is another business tax deduction that has recently become more attractive for small business owners. New to 2015, software purchased by a small business can be fully expensed in the year it is purchased. Prior to this, the small business had to depreciate the cost of the software over a three year period. Business related magazine subscriptions continue to be fully deducted in the year purchased.
Insurance Premiums – Insurance premiums offer a significant business tax benefit for small business owners because the costs are one hundred percent deductible. There are, however, some restrictions. The deduction cannot be more than small business’s net profit and is not allowed if the employee was eligible for other coverage such as that of their spouse’s health insurance. If the business owner’s spouse is an employee of the business, that person’s premiums are fully deductible as are those applied toward any dependent children. Although such premiums represent a huge business tax savings, it is important to have proof of the spouse’s employment by the business. Such documentation is essential in the case of an audit by the IRS.
Meals, Travel and Gifts – A business tax deduction is allowed for fifty percent of the cost of any meal shared with a client. In addition, when travel is required, it is important to know that hotels are 100 percent deductible while out of town meals are 50% deductible. Business gifts are tax deductible as well.
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