When it comes to your business expenses, there are a myriad things you can write off when you file your return. That in mind, do you know what what are the most common tax deductions for a small business?
Unfortunately, you can’t deduct just anything from your tax return. Nevertheless, here’s what a good accountant can do for you come tax time and what even the best professional in the industry… cannot.
What can you deduct as a small business?
1. Bookkeeping and accounting expenses are deductible
There are many reasons why you should hire a bookkeeper for your business and the good new is, bookkeeping expenses are deductible! Whether you choose to hire a bookkeeper or if you have someone in house who can assist, you can write the cost off as a business expense.
On the same note, you can deduct any expenses related to hiring an accountant, CPA and even a financial advisor, as long as you hire them to assist you with your small business.
2. Cash transactions can be deducted on your return
If you accept cash transactions from your clients – for instance, if you own a neighborhood restaurant or a small bar – you can increase your business expense deductions. The more cash payments you record from your clients, the more your tax accountant can help you save in taxes.
3. Home office and utilities
The cost of renting a place for your business is definitely deductible, but most businesses today that start small, start with a home office. Well, if you register your business at your home address, a portion of your personal expenses are deductible, granted the home is used regularly and exclusively as the principal place of business where you meet with your clients, or in some cases, as a separate structure used to conduct business.
On the same note, don’t forget that some of your utility bills are deductible as well! Your mobile charges, a second landline, internet bills, even your water, electricity and other basics can be deducted, as long as they’re necessary to operate your business. And if you want to know how to save even more money in the long run, pay extra attention when choosing between electricity suppliers so you can make sure you’re getting the best deal, avoid wasting energy when you’re at home and don’t forget to make your home or business eco-friendly so that you can save even more on your monthly utility bills!
4. Salaries, wages and contract labor are deductible
It’s not uncommon for small businesses to have employees and of course, payments such as their salary, are deductible. So are bonuses, commissions and some fringe benefits. On the same note, you may not have any employees, but rely on freelancers or independent contractors to do business. If that’s the case, you should consult with your accountant, because the cost of contract labor is deductible!
5. Car expenses
If you use your car – or a truck or a van – in the interest of your business, you should definitely let your accountant know so that they can help you deduct the costs. Just don’t forget to keep a record of your car expenses.
What expenses are not deductible for a business?
While hiring a good accountant increases your chances of maximizing your small business write offs, there are a few things that even the best tax professional in the industry can’t help you deduct.
1. An accountant cannot deduct anything illegal
Needless to say, illegal activities are NOT deductible! Any write offs you try to obtain that are related to unlawful conduct are not only not deductible, but they may also cause you a lot of trouble!
2. Self employment taxes are not deductible
If you’re self employed, you’re definitely running a business. Self employed individuals have clients, just like a “real business” and you can – and you should! – hire a bookkeeping service and / or an accountant to assists you with your yearly tax return. However, self employment taxes cannot be considered a business expense and therefore, cannot be deducted.
3. You cannot write off any penalties
Did you do something wrong and got fined as a business? Or maybe you’ve received a penalty for underpaying your taxes or filing late. Unfortunately, you cannot write off any of these on your next return. What you can do, however, is be extra careful when it comes to your business and taxes and avoid getting fined in the first place.
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