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Most Often Used Tax Deductions by Small Business

These days we are all about big data and statistics. If you have the correct information you can slice it and dice it in any way possible.

The IRS got into it as well and last winter published statistics on Schedule C filers; Sole proprietor and small business owners.

Here are the most popular deductions used by small business:

  • Car and Truck – Most popular deduction is for business use of vehicles like cars, vans and light trucks. You may forgo the need to keep records of gas refills and oil changes if you agree to the IRS rate of 57.5 cents per mile, instead of the actual costs.
  • Salaries and wages – Of your employees.
  • Contract workers – independent contractors. If you pay over $600 a year you have to issue Form 1099-MISC.
  • Rent and business property expenses – Office, store room, factory, store front etc.
  • Depreciation – This tax deduction is an allowance for the cost of buying property for your business. In it the famous Section 179 lies, which, in last ditch effort, became permanent instead of having to be renewed yearly. Deduction for equipment up front can reach $500,000 and 50% bonus depreciation.
  • Utilities and supplies – Items used for the smooth operation of the business.
  • Sales Tax – You were charged on goods and services involving the business. They are deductible from your taxes. Your employer taxes including employer share of FICA and FUTA and Unemployment. For self-employed business owners, the deduction of half the self-employment tax is not considered a business deduction.
  • Repairs – to the business property or machinery.
  • Insurance – Business owner’s policy, malpractice, business continuation insurance, those are all fully deductible.
  • Advertising – Main stream advertisement is fully deductible.
  • Travel – Cost of transportation and lodging is fully deductible. Local commuting costs are not deductible.
  • Home office – More and more people are working from home these days. Home office has to be a separate structure with a separate entrance from the residence, used regularly and exclusively as an office and is the place to meet and deal with clients and customers.
  • Legal and Professional fees – Accounting, consulting, legal – are fully deductible.
  • Meals and entertainment – A business owner can deduct only 50%, and the claim has to be substantiated.
  • Lease or rent of machinery and Equipment – Fees you pay on your leased or rented equipment are fully deductible.
  • Business debt interest – Credit cards, lines of credit, loans and leases.
  • Employee benefit programs and retirement plans – Expenses such as education assistance or dependent care assistance, as well as contributions to retirement plan accounts of employees.
  • Mortgage interest – For businesses who own reality, the interest is fully deductible.

 Are you taking advantage of those hard-fought deductions?


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