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Understanding Small Business Tax Deductions

Small Business Tax Deductions

 

Disclaimer: No tax advice, no legal advice, no financial advice.

Many people who have a small business or home-based business aren’t getting the deductions that they deserve. While it’s always important to follow tax laws closely, there are many small or home business tax deductions that are forgotten. To get the most from a business, make sure to include these deductions. 

tax deduction


Home Offices

A home office deduction is often left off the list, but be sure to include this deduction in taxes. The key to using this deduction is making sure that the home office is a space in the home devoted to just the business and nothing else. A family den, for example, won’t work in this way. However, the deduction doesn’t have to be limited to an entire room. A home office can even be part of a room. To get a realistic deduction, measure the work area and divide this number by the square footage of the home. That percentage can be used to determine which living expenses such as rent, mortgage, insurance, and electricity can be claimed. 


Furniture

When office supplies comprise more than just basic pens and paper, be sure to deduct these expenses as well. A tax deduction can include office furniture in a few main ways. Deduct either the entire cost of the furniture purchased or a portion of the expense over seven years, which is known as depreciation. When unsure of which way to do this deduction, anticipate which times the small business is going to need these deductions the most. Other equipment such as computers, fax machines, scanners, and similar items can be deducted the same way although this equipment has a five-year depreciation period


Mileage

For small businesses, driving is an expense that is deductible, but most people wouldn’t recognize it as such. To save money on gas, keep a notebook in a vehicle and record the date, mileage, any tolls or parking costs, and the purpose of the trip. At the end of the year, add up the costs and use this as a small business tax deduction. Or, if desired, measure the business usage against personal driving and deduct that portion of any auto-related expenses including gas, repairs, and insurance. If leasing, be sure to include those payments or factor in loans if purchasing. And, if the company’s office is at home, small businesses get even more of a break. In this case, deduct the entire business-related mileage from leaving the driveway until returning home. However, if the business is not home-based, the mileage meter starts at the first business-related destination and will end at the last. 


Child Labor

For many people who have a small business or a home-based business, their kids play a significant role in the work force. When limited childcare is available, kids are even more of part of that business. If they are paid for their work, then, depending on the amount, they may be able to avoid income taxes. Also, there is no social security tax when the child is 17 or younger and their salary can be deducted as a business expense. However, this small business tax deduction is only available when you or you and your spouse are the only partners. If the business is run as a corporation, then this will not be an option. 


Insurance Premiums

For small businesses where many of the owners are self-employed, it’s common to be paying for your own health insurance premiums. However, the entire amount of these costs are deductible. However, keep in mind that there are some limits to this deduction. It cannot be more than the net profit of the business and it won’t be allowed if you were deemed eligible for other healthcare coverage, such as the coverage offered by an employed spouse’s plan. However, this deduction can be significant for a small or home-based business. Additionally, some of the premiums paid for long-term care insurance are also deductible, so be sure to count these expenses in a tax return. 

Many small business owners don’t realize that they can save a significant amount of money on their yearly taxes. These small business tax deductions tend to be even greater for a home-based business, so they’re well worth any extra time or effort preparing yearly tax returns. Be sure to both document these expenses and claim them correctly to get the most from each deductible expense.