Tax deduction for small businesses

Small businesses are often in a rather difficult position because they are expensive to run and organize and they are working with a small profit margin. Therefore, they need all the help that they can get. This usually comes in a form of a tax break.

Here’s a list of small business tax breaks that you can count on and that will help you keep most of your income and use it towards improving your business or providing a better life for your employees.

Vehicle expenses

Vehicle expenses are amongst the most common expense a small business needs to cover and ones that are rather demanding on a small company. That’s why it’s an expense that can be deducted from your yearly taxes and thus made easier on you. It can be done in two ways.

You can get a deduction that’s straightforward and arraigned by the IRS meaning that you get a deduction based on the mile driven. Another way to go is to keep close track of all of your driving expense including fuel, maintenance and everything else that might come up. This way you get more but you’re also obliged to do more work.

Home office

These days more and more businesses are opting out for working from home instead of setting up a traditional office. It’s a way to save on infrastructure with little downsides at least while the company is small. The expenses needed to run such an office are tax deductible.

There are a few metrics to keep in mind when calculating how much you can get in deductions: Total square footage of your home / divided square footage used as an office = the percentage of direct and indirect expenses (rent, utilities, insurance, repairs, etc.) that can be deducted.

Deprecation

Deprecation is the process in which the equipment and the items that you’ve bought for your business lose their value over time. This also means that you can deduct the cost of that equipment from your taxes over time until it loses its value.

There are a few rules to follow however:

-The item needs to be used for business purposes
-The useful life of the item need to be more than one year
-It needs to be an asset that wears out over time.
-It can’t include land or inventory you sell

Professional services

There are a few professional services that a business needs to use and can’t do in house when it’s a small company and doesn’t have experts of their own. These professional service are mostly about accounting and finance. These will be the first that you’ll have to hire beyond your initial team and you’ll therefore get a tax break for their services.

The accounting services are mostly covered in terms of the fees that you pay to the accounts directly and they don’t count other costs such as HR ones and the software needed for their work.

Work opportunity tax credit

Work opportunity is a governmental project made to help certain groups get a job and thus get their life in order and pick themselves up by the bootstraps as the saying goes. It’s mostly made for hiring veterans but also for hiring other long-term unemployed people.

This is a smaller tax credit but it helps small companies never the less because every little bit does. It covers 40 percent of the first $6.000 of their salaries, which is not paid by the government but by the business. The amount is than deducted from taxes.

Client and employee entertainment

Client and employee entertainment is an important part of marketing and making new deals for many businesses. It’s how deals are made, by wining and dining and attending the events for your clients and employees. This is expensive and tax breaks are there to help with that.

Here are a few rules as to what you can deduct:

-It goes for the 50 percent of the meal costs
-Office parties and company retreats can be deducted completely.
-Office meals and office snacks could be deducted altogether.

The difference is therefore made based on towards whom the expense is made.

Employee benefits

Employee benefits are the best way to attract the talent and to make sure that the best of employees will stay loyal to your company. They go from health benefits to insurance, profit sharing, and matching the donations made to charity by your employees.

All of these are 100 percent tax deductible. There are arguments to be made that these are oriented towards larger companies, but they work for a small business that can afford it as well.

The government helps small companies usually by providing tax breaks that cover their expenses. This is a list of just some of them and you should ask your accountant about the details of more.