Business owners can take advantage of a range of deductions to minimize their tax burden. Knowing what these deductions are keeps you informed and reduces your tax liability.
Here are the top five tax deductions that every business owner should know about.
1. Business Meals
Grabbing lunch with a client or picking up food for the overtime team is more than just an expense – it’s a deductible business expense. The IRS allows businesses to deduct 50% of the cost of meals related to business activities, such as meetings with clients or staff. Remember to hold on to the receipt and jot down the following notes:
- Date
- Location
- Who attended, and their relationship to your business
- Total cost
2. Business Vehicle
If you use your car, truck, or van for work, you can deduct some of the costs associated with your travel. This applies to independent contractors as well as those who operate more traditional businesses.
You have two options if you want to claim this deduction. Option one is to log how many miles you drive for business and accept the standard mileage deduction at the end of the year.
Option two is to keep track of your fuel and maintenance costs. Because these numbers represent actual expenses, you may qualify for a bigger deduction if you choose this route.
Whichever method you decide on, keep records of your vehicle use in case of an audit by the IRS.
3. Qualified Business Income
The Qualified Business Income Deduction (QBI) is a major tax break introduced in 2017 by the Tax Cuts and Jobs Act. Also called the Section 199A deduction, this deduction lets some businesses deduct 20% of their income. It’s available to owners of pass-through businesses such as:
- Sole proprietorships
- Partnerships
- S corporations.
Individual income must fall below $160,700 in taxable income to qualify, while married couples need to make less than $321,400.
4. Startup costs
Starting a business is expensive, but you can recover some of the costs through tax write-offs. The IRS allows you to deduct many expenses incurred during the setup phase of your company, such as market research and incorporation fees.
The IRS splits these as “start-up” and “organizational” costs. The former includes money spent launching or purchasing your business. Organizational costs refer to expenses related to the business’s legal formation, such as partnership filing fees.
You can deduct up to $5,000 of start-up costs and $5,000 of organizational costs during your first year of business; any amount above these thresholds can be deducted over the next 15 years.
Keeping up with these deductions can be tricky, so speaking with experienced accountants like the team at Kondler & Associates, CPAs, is a good idea.
5. Home Office
You’re eligible for a home office deduction if you run your business out of your home. However, you can only claim a deduction for spaces exclusively used for your business.
Current IRS regulations allow you to deduct $5 per square foot for up to 300 feet of home office space, with a maximum deduction of $1,500.
You can also deduct some of your home’s utilities and maintenance costs.
What Is a 100 Percent Tax Deduction?
A 100 percent tax deduction is a business expense that can be written off in full. Examples include:
- Office furniture and equipment
- Business travel
- Employee gifts up to $25 per person.
The exact list of deductible items varies slightly from year to year, so staying up to date with the latest changes is important. The tax professionals at Kondler & Associates, CPAs, are always available to answer any questions by appointment.
Get Professional Help
Tax deductions can be confusing, but the team at Kondler & Associates, CPAs, can help you take full advantage of every potential deduction. Contact us to learn more about how we help businesses save money on taxes.
