Save on Your Tax Liability
We’ve almost made it to the end of another year. Pretty soon, it’ll be tax season. And, while you might not want to worry about taxes before you have to, now is the perfect time to position yourself to pay a little less to the government. Here are several end-of-the-year tax deductions to focus on now.
Download the 2022 Tax Planning Checklist to mark off the items you’ve completed and those of which you can still take advantage.
How to claim small business deductions.
You can claim most small-business deductions on Schedule C and Schedule E forms (just be sure you’re filling out the right form for your business type). You can use these forms to add up all your deductions and figure out your taxable income.
Qualified Business Income
Most small businesses (sole proprietorships, LLCs, S corporations and partnerships) can deduct 20% of their income on their taxes. Here’s what that means. Say you own a small business and it generates $100,000 in profit. You can deduct $20,000 before ordinary income tax rates are applied. But be warned: There are a few limits that could prevent you from claiming this deduction.
Have you turned a spare room in your house or apartment into a home office space? You’ll probably be able to deduct some expenses if you’re using your home space exclusively for business, including mortgage interest, insurance, utilities, repairs and depreciation. If your office doubles as a guest room, that’s not going to fly. The simplified version of this deduction also allows small-business owners to deduct $5 for every square foot of their home office—up to a max of 300 square feet.
The cost of renting a space for your business is fully deductible.
Marketing & Advertising
You can deduct anything you use to promote your business and bring in new customers—including things like social media ads and billboards.
Office Supplies & Expenses
The good news is, those supplies are fully deductible. And, if you’ve bought a new laptop, smartphone or some other gadget you use for your small business during the year, you can write off the entire cost of those expenses too.
If you need tools like a Microsoft Office subscription or point-of-sale software (like Square) to run your business, you can claim them on your taxes.
Luckily, the IRS considers office furniture as office supplies. Which means you can . . . you guessed it—deduct it!
Everything you spend on utility bills for your business—including electricity, phone, internet, water, heat and sewage—is fully deductible.
If you need to repair parts of your business property or perform regular maintenance to keep things running efficiently, you can also write off those costs on your taxes.
Inventory / Cost of Goods Sold
Uncle Sam actually lets you deduct the cost of making or purchasing expenses like raw materials, employee wages, and storage. But this deduction can get a bit technical, so give me a call first.
If you can prove you use a vehicle for business purposes, you can deduct those expenses from your income. They’re one of two ways to claim this—the standard mileage rate or adding up car-related expenses.
Energy Efficiency Deduction
Do you own a commercial property or building? If you’ve recently made upgrades to increase energy efficiency—like improvements to heating, cooling and interior lighting—you might qualify for a deduction of up to $1.88 per square foot. But you have to show you’ve reduced energy usage by 50% to get the full deduction.
you can deduct most travel expenses for you and your employees—as long as there’s a business purpose behind the trip.
Salaries, Employee Benefits, and Freelancers/Contractors
If you have employees, anything you pay them—from salaries and wages to bonuses and commissions—counts as tax-deductible business expenses. You can also deduct contributions to their retirement plans, education assistance and most other employee benefits. The cost of hiring freelances and contractors is also fully deductible. Just make sure you issue the right IRS form (1099-NEC or 1099-K, depending on how you pay them) to any freelancer or contracted worker who you pay $600 or more.
You can also deduct up to $25 per person per year for employee gifts.
You can fully deduct educational costs as long as they add value to your business. So, if you pay for things like classes, workshops or seminars (or even books and subscriptions) that strengthen your business know-how, you can deduct those costs. But remember, any educational costs need to add value to your business.
Nothing feels better than deducting taxes on your taxes. While you can’t deduct federal income taxes, you can write off up to $10,000 of state and local income taxes, sales taxes, real estate taxes and personal property taxes.
Here are a few other taxes you can deduct:
- Part of your self-employment taxes
- Franchise taxes
- Excise taxes
- Occupational taxes
The cost for many of the insurance premiums you’ll need for your business—like liability insurance, fire and flood insurance, or theft insurance—are deductible. Medical insurance for your employees is also deductible under certain circumstances as well.
Legal & Professional Fees
You have the right to an attorney—and the right to deduct any legal and accounting fees charged by attorneys and accountants that are related to your business operations.
Bad Business Debt
You can claim bad debt as a tax deduction as long as you can prove it’s a business debt and not personal. Bad debt is when you lend money to an employee or vendor and don’t get it back. Credit sales to customers and business loan guarantees are also considered bad debt by the IRS (if previously included in income).
If you want to chat about tax deductions before year end, give me a call. Let’s talk through it together.