7 Tax Deductions No Small Business Owner Should Ignore

February 11, 2016 / Reading: 6 minutes

Many business owners are unaware of some tax deductions they are qualified for. Many business owners continually look for ways to lower their overall taxable income, we want you to be one of them.

By claiming tax write-offs, you can reduce your taxable income so you might end up paying less of your hard earned money to Uncle Sam. This can potentially save you a significant chunk of money by lowering your tax burden.

Related: Free Small Business Tax Forms and Instructions

Keep in mind however that the IRS has strict requirements in place in order for an expense to be considered deductible (though there is a fairly good chance that most – if not all – of your business expenses fit the requirements below):

  1. Ordinary: an expense that is common in your profession / industry.
  2. Necessary: an expense that is appropriate or helpful in developing or maintaining your business.

So with that in mind, here are some small business tax deductions you should definitely consider claiming come April 15:

1. Health Care Tax Credit

Any company that provides insurance to their employees under The Affordable Care Act can claim up to 35% tax credit if it meets the following criteria:

  1. Have less than 25 full time employees
  2. Its annual wages on average is below $50,000
  3. Its contribution toward employee health insurance premiums is 50% or more.

2. Usage Of Personal Vehicle For Your Business

Making use of your personal cars, trucks or van to carry out your business operations can help you reduce tax payment. You can use this deduction in one of two different ways:

Use your actual expenses:Standard mileage rate:
Deduct the business expenses related to your vehicle (e.g. Gas, Cas washes, Oil and tire changes).Let’s say you had to use your car for 3,000 miles for business-related activities, then you need to multiply that by the IRS standard mileage rate (which for 2015 is 57.5 cents). That would represent a total write-off of $1,725.

So if need to use your car for business activities such clients meetings or visits to suppliers (or even to attend industry tradeshows), you are able to deduct automobile expenses.

3. New Equipment Expenses

You can claim tax deductions on most new equipment you purchase for your business within the year (up to $500,000) under the Section 179 deprections deduction. This deduction can lower your taxable income by allowing you to get the entire equipment depreciation deduction in one year, instead of over time.

Examples of what is deductible:

  • Vehicles
  • Computers / Laptops / iPads
  • Software (off-the-shelf, i.e. not already pre-installed with the computer)
  • Phone

Examples of what is not deductible:

  • Land
  • Buildings
  • Inventory
  • Intangible property (e.g. tradermarks or patents)
  • HVAC units

It is important to remember however, that if your business is at a net loss for the year, you cannot claim the Section 179 deduction for that year.

4. Charitable Contributions

Contributing to an eligible charity during the tax year qualifies you for tax break. The accounting method you used doesn’t matter. Just make sure you document them properly.

5. Home Office Deduction

Provided you carve out an area to run your business at home, you will be qualified to receive deduction on your phone bills, internet fees, insurance, rent and more. There are 2 methods to use when calculating your home office deduction amount:

Simplified methodTraditional method
Since 2013, the IRS allows for home office deduction of $5 per square foot, up to a maximum of 300 square feet ($1,500).Requires figuring out the percentage of your home used for business. For example, if you house is 2000 square feet and your home office takes up 200 square feet of space, then your percentage is 10%. Once you figure out the percentage, you can then apply it to home-related expenses (e.g. Mortgage, Utility Bills, etc)

Now that you know the differences between the two methods of calculating the home office deduction, you may want to compare both versions to see which one gives you the most savings for your particular situation.

6. Hiring Veterans

If you are able to hire a veteran that has been unemployed for over 4 weeks, you will be qualified for tax deductions. If the veteran has been unemployed for at least six months, you will be qualified for up to 40% of the first $14,000 of wages (up to $5,600)

7. Professional Fees And Training Costs

Your business can qualify for tax deduction if it organizes training classes and seminars. Also, lawyers and tax professional fees employed in your business are deducted as well.

Examples of what is deductible:

  • Tax preparation
  • Legal services
  • Bookkeeping and Accountant fee
  • Professional consultants’ fees

To take advantage of this deduction you should always remember to ask for an itemized bill showing the cost for the professional services rendered.

While the information in this article is derived from sources believed to be accurate, it is not intended as tax or legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
It is always best to check with the IRS and see what their current rules and options are