As a small business owner, we know that you do your best to keep costs to a minimum. One way to save money that many business owners overlook is tax deductions. Tax deductions that sole proprietors, partnerships, and LLCs may be able to take add up to a significant amount of savings. Understanding which deductions you’re able to take for your small business will ensure that you don’t miss out on a potential tax write-off.
Tax deductions for small businesses may be either related to the regular costs of running a business or personal expenses of small business owners. Your small business may be able to take several deductions, although not every deduction will apply to every business. Getting help from a Denver tax professional can ensure that you claim the proper deductions on your tax return.
What’s A Tax Deduction?
Tax deductions are expenses that are subtracted from your taxable income. Deductions take certain expenses into account in the calculation of the amount of taxes that you’ll have to pay, allowing for a lower tax bill. But, the IRS has guidelines for tax deductions that you’ll need to follow.
Small Business Tax Deductions
Home Office Deduction
One tax deduction that many small business owners can take is the home office deduction. If you complete work for your small business out of a home office, you can deduct a portion of home expenses on your tax return. This includes rent, utilities, repairs, insurance, as well as other direct and indirect home costs as outlined by the IRS.
It’s important to note that you can only take the home office deduction if you have a space at home that’s used only for your small business. The space can’t double as a TV room, for example. Additionally, if you occasionally complete work for your small business at the kitchen table, you can’t deduct expenses related to the kitchen. The home office deduction can only be taken for space in your home used exclusively for small business operations.
To calculate the home office deduction, you’ll need to divide the square footage of your home by the square footage of your home office. This will give you the percentage of home expenses that you can take as a tax deduction.
Since the home office deduction can be complex, it’s often wise to enlist the help of a Denver tax professional when you file your tax return. With a professional’s expertise, you can avoid the hassle and expense of getting audited.
Salaries and Wages
For sole proprietors or owners of LLCs, you may be able to take the salaries and wages that you pay your employees (both part-time and full-time) as a tax deduction. Additional payments that you may make to your employees, such as bonuses, per diem, meals, lodging, etc.
Services From Outside Professionals
Many small businesses utilize the services of various freelancers and other service providers, rather than employing in-house professionals. The cost of hiring outside professionals for your small business is tax-deductible, so long as the expense of the services is considered necessary and within reason. To make sure that you qualify to take this deduction, you can check the fine print of IRS guidelines, or check with your Denver tax professional.
For small businesses without conventional offices, there’s an available tax deduction for conventional business supplies and office expenses. The supplies purchased have to be used within the tax year. Additionally, you may often take the expense of shipping, postage, and other delivery costs if these services are necessary for your small business.
To remain competitive in the current market, all small businesses need to invest in advertising. Advertising expenses are entirely tax-deductible, save for expenses associated with lobbying or sponsoring political campaigns.
Examples of tax-deductive advertising expenses include:
- Business cards
- Logo design services
- Social media marketing campaigns
- Advertising space online or in print media
- Creating a new website
- Sponsoring a non-political event
- Cards mailed to your customers
Business insurance is another tax-deductible expense for small businesses. Various types of business insurance may apply here, including property insurance, liability insurance, worker’s comp, group health insurance, and more.
For tax help in Denver for your small business, contact JM Tax Law today.