It is essential for a small business to take every tax deduction they are eligible to receive. When this isn’t done, it’s the same as throwing money away. Legal tax deductions are able to significantly decrease the amount of business earnings that are taxable. Unfortunately, there are always tax deductions a small business may be able to take but don’t.
Deduction For Home Office
Many small business owners use a room in their house as their primary place of business. This could be where a person does their architectural work, assembles products and more. It’s important for a small business owner to be certain they claim their office deductions. Actual expenses such as painting and repairs of the office can be deducted. Indirect expenses such as utilities, insurance, repairs and more can be deducted based on the percentage the room takes up in a business owner’s house.
Qualified Production Activities
Section 199 is a special tax code provision. This provision enables a business to take a deduction of up to nine percent of its income based on qualified production operations. This deduction is not permitted to be more than 50 percent of the W-2 wages paid by a business. Many individuals believe this deduction is only applicable to traditional manufacturing companies. It is actually available for a number of other small business such as architects, farmers, engineers, miners, fishermen and more.
It is possible for a business owner to buy lunch during work and be able to deduct up to 50 percent of the expenses involved. This deduction applies to both eat-in as well as take-out meals. There is a stipulation that the dining expenses must be reasonable. This deduction could apply when eating with employees, business partners, accountants, lawyers and more. Should a business owner purchase lunch daily and spend approximately $10.00 each time, they should be able to deduct $5.00 for each meal.
Personal Cell Phone for Business Calls
Many small business owners spend a lot of their time on their cell phone making business calls. If a small business owner spend 70 minutes a day on their cell phone for business, in a year’s time that could be more than 25,500 minutes for business calls. It is possible for a small business owner to deduct over 49 percent of their cell phone costs as part of the expense of doing business. Should a person pay $150 a month for a cell phone, they may be able to deduct $75 each month or $900 a year for cell phone costs.
Should a small business owner purchase or lease a vehicle and use it for business, they will be required to meet insurance requirements. They should also consider business insurance, health plans and other insurance products designed to protect their investment. Many types of insurance premiums paid by small business owners are tax deductible.
Bad Debt Losses
It is too common for a small business to have unpaid receivables they are unable to collect. It’s possible for this not to be a total loss. The small business may be able to deduct this bad debt. According to the IRS, a bad debt is something acquired or created as a result of doing business that has become worthless in part or in whole. Bad business debts could be anything from payments due from an insolvent company, client loans, returns to suppliers and more. A small business must try and collect for a reasonable time period and use reasonable methods to collect.
Running a small business is not easy. All small business owners should be interested in taking every tax deduction that is permissible by law. To make sure this is done correctly will involve speaking with a tax professional. It may also require a small business owner to do some research concerning tax deductions on their own.