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The Top Eight Tax Breaks for Small Businesses


Small business owners must take advantage of tax deductions for a variety of reasons, including lowering their tax burden, increasing profitability, promoting investment, and enhancing growth. Let’s take a closer look at these top eight tax breaks that a small business owner can avail.


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Tax liability reduction:

Small business tax deductions can help reduce the amount of taxes owed to the government, allowing the company to save money and enhance its cash flow.

Increasing profitability:

Small business tax deductions can increase a company’s profitability by cutting taxes owed. This is especially critical for small businesses with modest profit margins.

Investment encouragement:

Small business tax breaks can also boost investment by making the company more appealing to potential investors seeking methods to minimize their tax bill.

Facilitating growth:

Tax breaks can help small businesses grow and expand by lowering their tax burden. This can lead to the creation of new jobs and increased economic activity in the surrounding area.

These deductions can help small enterprises with low-profit margins. Small businesses should engage with a skilled tax professional to ensure that they are taking advantage of all possible deductions.

But what about small business tax breaks?

Tax deductions can help small businesses reduce their taxable revenue and reduce their tax obligations to the government. These benefits are available to sole proprietorships, small businesses, C corporations, S corporations, partnerships, and limited liability companies, although laws differ. It is critical to keep detailed records and itemize costs in order to benefit from these deductions.

Small businesses can claim the following eight tax breaks.

1. Expenses associated with work-related travel

Business travel expenses that can be deducted during tax season include flights, luggage, hotel, vehicle rental charges, gratuities, dry cleaning, meals on business trips, tolls, gasoline, and more. To qualify as tax-deductible work-related travel expenses, the journey must meet the following criteria: it must be necessary for business-related reasons, it must take place away from your personal tax residence for more than a standard work day, and it must need you to sleep or relax en route. It is strongly encouraged that you keep all of your travel receipts and comprehensive records of all costs incurred during the business trip as documentation for tax season in case of an audit.

2. The salaries of employees

Small businesses can reduce their tax bill by taking advantage of employee salary tax deductions. Wages, commissions, bonuses, and employee perks such as health insurance and retirement plans are all subject to this deduction. The timing of claiming the deduction is determined by whether the company uses the cash or accrual methods. Employment taxes, paid time off, travel expenses, and training fees can all be deducted. Deductions, however, are only allowed in the year in which the employee reports them as income unless the employee has a connection to the employer. Loans or advances may also be deductible, but excessive compensation is not. Small businesses can minimize their tax burden and improve their financial status by exploiting these deductions. Consulting with professional tax planning services can help firms optimize their resources, reduce taxes, and meet their financial goals.

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  • Expenses for a home office: 

You may be able to deduct a percentage of your home expenditures if you work from home. To claim a deduction, you must meet certain criteria, such as having a separate workplace, spending the expenses individually, keeping records of all expenses related to your home office, and accurately analysing the charges.

Heating, cooling, and lighting are examples of home office expenses, as are depreciation of office equipment and furniture, cleaning costs, phone and internet fees, computer consumables, printer ink and paper, stationery, and occupancy expenses such as rent and mortgage interest.

  • Qualified Business Income:

The QBI tax deduction provides tax relief to some pass-through business entities that include limited liability companies (LLCs), sole proprietorships, partnerships, and S corporations. 

It allows qualifying business owners to deduct up to 20% of qualified business revenue from their personal income taxes, excluding capital gains, dividends, and interest income. To qualify for the QBI deduction, the firm must be a qualifying trade or corporation, which typically excludes many service enterprises.

The QBI deduction is determined on the owner’s individual income tax return and is often available to individuals with taxable incomes less than certain restrictions. It is subject to certain limits and will eventually be phased out for some higher-income individuals.

Companies should speak with a tax expert to find out if they qualify and how effectively to include the claim in their tax returns.

  • Expenses for advertising and marketing: 

These are marketing expenses such as print ads, web ads, and social media marketing. As a business owner, you may be able to deduct advertising and marketing expenses while running your firm. 

However, not all of these expenses are tax-deductible, and specific criteria and circumstances must be met. Advertising expenses include the cost of advertising in newspapers, magazines, radio, television, billboards, and internet platforms. 

You may be able to claim a tax benefit if you sponsor an event or a charity. There must, however, be a tangible business benefit to the sponsorship.

Marketing research costs might include the costs of surveys, focus groups, and other research approaches. The design and distribution of promotional materials are examples of promotional costs.

Website development costs include the establishment and upkeep of a website. There are some restrictions and limitations on claiming tax deductions, such as private or domestic costs, as well as unique legislation governing alcohol and tobacco advertising.

  • Depreciation and Amortization: 

These are deductions for the gradual depreciation of commercial assets like as equipment and real estate. Businesses can deduct depreciation and amortization from their taxable income.

 Depreciation is the process of decreasing the cost of a tangible item over time. Businesses can deduct a percentage of the asset’s cost for the period of the asset’s useful life. For example, if a company spends $10,000 on equipment with a 5-year useful life, it can deduct $2,000 each year in depreciation charges for 5 years.

In contrast, amortization is the process of deducting an intangible asset’s cost over its useful life. This category includes patents, trademarks, copyrights, and goodwill.

Businesses, like depreciation, can deduct a portion of the cost of an intangible asset each year for the duration of its useful life.

Depreciation and amortization are thus non-cash expenses. In any event, by lowering taxable income, they can still provide significant tax benefits to corporations.

  • Business Bad debt deduction

A business bad debt is a debt that a company owes but is unlikely to pay. If a company has a bad debt, it may be allowed to deduct the amount of the debt that is declared uncollectible on its tax return.

To qualify for a company’s bad debt deduction, the debt must fulfill certain criteria.

A legal business debt must have been incurred as part of the company’s regular trade or operations. Second, the debt must be worthless during the year in which the deduction is claimed.

To prove that a debt is worthless, the company must show that it took reasonable attempts to collect the obligation and that the debt is unlikely to be paid in the future.

You may be required to give proof of collection efforts if the debtor is bankrupt. Businesses that have uncollectible debts might seek tax breaks.

The deduction, however, must be taken when the debt has become worthless, not when it was obtained or established.

  • Legal and professional fees: 

These are the fees paid to lawyers, accountants, and other business experts for their services. Depending on the nature of the services and the circumstances surrounding their occurrence, legal and professional fees may be deducted.

Legal and professional fees can often be deductible as business expenditures if they are utilized to earn money or carry out company duties. For example, the costs charged by an attorney for business advice or an accountant for tax preparation are tax deductible.

The deductibility of legal and professional fees is subject to many restrictions and limitations.

Fees linked with the purchase or sale of a business or property, for example, must be capitalized and subtracted over time. Similarly, legal bills in lawsuits or other legal actions are deductible if they are not deemed personal or capital expenses.

If you are claiming a tax deduction…

Tax deduction requirements are set by the IRS. This is not a comprehensive list.

Maintaining accurate records of bad debts is essential, as is contacting an accountant or tax expert to confirm that you are taking advantage of all allowable deductions and adhering to all relevant tax laws and guidelines.

Do you want to keep tabs on your taxable income in a simple way? BFG can assist you by offering insightful advice on tax management-related issues.

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