To reduce tax burden, consider this top 25 tax deductions for small business. Some of the common deductions are wages, travelling expense, interest, promotion expense. Check out the whole list now to save your business cash.
TOP Tax deductions for small business as per US tax Law:
To reduce Cost of goods sold:
If you are involved in business of reselling product, you can save your taxes by claiming cost of goods sold. The deduction is not for service provider. However, if you are charging for material supplies in your business ( In addition to service fee), you can claim this deduction.
Travel expense is deductible when you are travelling away from tax home for business purpose or business assignment. You can deduct transportation expense, car expense, telephone , tip paid, meal expense, incidental expense. ( With deduction limit as per IRS). Please note that you can not claim travel expense which is for personal purpose. There is different rules for travel in US and outside US.
Advertising expense you have incurred during the year can be deduct from income as per US tax law. Advertise includes all the cost you have done to market your business.
When some customers become bad and it is not possible to recover the money, you can write those amount as bad debt. The bad debt amount can be claimed as write off. The condition to write of bad debt is that you use accrual accounting method ( You Record income when it dues and not when cash is received by customer). When you follow cash basis accounting, you cannot write bad debt.
When you have rented any property and used for business purpose, rent paid for the period used in the tax year is deductible. If you are working from home using part of the home for business purpose, you can still claim the rent paid for home as per guidelines of Business use of Home.
Employee salary / pay:
Employee pay is deductible in schedule C. Please note that pay must be reasonable and for services provided by employee. When you have sole proprietary firm, you cannot deduct your own salary as employee pay. The pay may in the form of cash, service or property.
Following can be considered as employee pay:
- Monthly salary
- Sick pay
- vacation pay
- Fringe benefits
- Employee benefits programme
- Education expense
- Other as per tax law
You can claim depreciation as expense when you acquire the property and are using for business purpose. Following conditions should be satisfied to claim depreciation:
- Property should be owned by you.
- It should be used for business.
- It must have determinable useful life more than 1 year.
- You can claim depreciation on computer, machinery, car, truck, office furniture, building etc.
Here is the publication of IRS for How to depreciate property as per US tax law.
Following insurance premiums are deductible from gross income for business tax purpose.
- Insurance to cover bad debt
- Insurance premium to cover fire, theft, flood etc.
- Car or vehicle insurance
- Business interruption insurance
- Malpractice insurance
- Liability insurance
- Workers’ compensation insurance
- Group insurance and medical insurance for Employees
- Self employed health insurance for you and your family
You can write off expense related to operating and maintaining the car. Car should be used for business purpose. You can claim car expense reimbursed by you to your employees.
Local transport Expense:
You can claim local transport expense incurred for business meeting away from your regular workplace, visiting clients or getting to temporary workplace.
Repair and Maintenance:
You can deduct repair and maintenance expense incurred for tangible assets- building, machinery, equipment etc. Please note that repair and maintenance which is required to be capitalized should not be claimed as deduction in tax return.
Legal and professional fees:
Legal and professional fees paid necessary to operating your business is eligible to write off. However, legal fees paid to acquire asset is of capital nature and should be added to asset value.
Tax preparation Fees:
You can deduct tax preparation fees related to preparation of business schedules.
You can contribute to pension plan SEP, SIMPLE, Qualified pension and save taxes. Contribution to pension plan for employees and yourself is eligible to deduction.
Interest accrued or paid by you for the tax year can be claim as tax deduction for small business. The debt should be related to business purpose. You cannot claim interest paid on personal loans. It the loan is partially for personal use and partially for business use, you can divide the loan interest between personal and business and claim interest for business purpose.
Do not forget to claim following taxes while filling schedule C/ C-EZ:
- Income taxes on business
- Employment taxes
- 50% of self employment tax
- Personal property tax and Real estate tax ( when the property is used in business.)
- Sales tax paid on service or good purchased. You can treat sales tax amount as cost of goods or services.
- Excise taxes paid for carrying on your business.
- Fuel taxes should be considered as part of fuel expense.
Do not mix this with your personal entertainment expense such as vising parks or watching movies. As per US tax law, Entertainment expense is the expense you incurred for entertainment of clients/customers. It includes amusement expense, meals provided, recreation activities.
Other expense you can deduct from Gross income:
- Bank Fees:
- Education expense
- Subscription to professional publication
- Interview expense allowance
- License fees
- Penalties paid for non performance of contract
- Supplies and material
Expense you cannot deduct:
- Penalties paid to government agencies for non fulfillment of law
- Political contribution
- Charitable contribution
- Lobbying expense
- Family and personal expense
- Repairs which adds value to property – Capital nature.
- Demolition losses
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