21 Small Business Tax Deductions You Need to Know
Many small business owners miss out on tax savings simply because they aren’t aware of what tax deductions are available. As professional accountants, we know all the small business tax deductions that can save you money, and we’re sharing them in this tax deductions checklist. Before we get into the nitty-gritty of what you can count as a tax deduction, let’s define what a tax deduction is and isn’t. What is a tax deduction? You may also hear people refer to tax deductions as tax write-offs. Put simply, it’s an expense that you can deduct or subtract from your total taxable income. The benefit of tax deductions is that as you lower your total taxable income, you could lower the percent you pay. There are different tax deductions for small businesses and individuals. For this, we are focused on small business tax deductions. The actual amount that you’ll pay in taxes depends on many factors like your tax bracket (how much taxable income you have), where you operate your business, and what type of business you have (C-corp, sole proprietorship, LLC, partnership, or S-corp). The IRS Publication 535 has about 60 pages of details related to business expenses, tax deductions, tax credits, and more, so it can be confusing for new companies. Tax Deduction vs Tax Credit A tax deduction and tax credit can both save you money on taxes, but they are different terms. Tax deductions can lower the amount of taxable income. For example, tax brackets–a range of annual income–are used for income tax. If your income falls within a lower range, the percent of income taxed may be lower. Tax credits are set amounts that are subtracted from your total taxes owed. If you qualify for a business tax credit, the amount of that credit is subtracted directly from the amount of taxes you pay. Tax credit – If your business owes $40,000 in taxes and you qualify for a $10,000 tax credit, you’d owe $30,000. Now that we have a clear understanding of what counts as a tax deduction vs tax credit, let’s dive into the specifics, so you can start saving some money on taxes. Top Small Business Tax Deductions Checklist To figure out if you qualify for a small business tax deduction, first identify what business expenses you have. Most business expenses are tax-deductible, but it can be tricky to track and separate them from personal expenses. This small business tax deductions checklist will help you do just that. You can click on each section below to go directly to that tax deduction. Some of the common small business tax deductions are: Home office Office supplies Rent expenses Business insurance Bank fees Interest Car expenses Travel expenses Phone expenses Employee wages Employee benefits Education and training Business meal expenses Contract labor Advertising and marketing Legal, accounting, and professional fees Conventions and trade shows Gifts Charitable deductions Equipment and depreciation Repair and maintenance Let’s take a look at each of these small business tax deductions in-depth. 1. Home office Many people have questions regarding a home office deduction. So many people have been working from home since the Covid-19 pandemic, but only those who meet the home office guidelines can include this expense in their small business tax deductions. If you use part of your home as an office and you run a self-employed, partnership, or other business, you may qualify. However, your home office needs to meet certain criteria. If it fits any of these descriptions, you likely qualify for a home office deduction. Your home office is your primary place of business. If you designate a physical store or other location as your office, then you wouldn’t qualify. It is where you conduct business, meet regularly with clients, and complete orders. It is a separate structure (like a guest house or studio) that is not connected to your place of residence. If you do qualify, you can deduct office expenses like utilities, mortgage payments, and even repairs. You can do this by using one of two methods–simplified or regular deductions. Simplified Deductions If you use the simplified option for claiming tax deductions, the IRS permits you to deduct $5 per square foot of office space. However, you’ll be capped at a maximum of 300 square feet, which often prevents you from claiming garage space as a work area. Regular Deductions Using the regular method, you’ll need to determine the square footage of your home office and express this area as a percentage of your home’s total square footage. You can then apply this percentage to all home expenses. For example, if your home office represents 10% of your home’s total square footage, you can deduct 10% of expenses which include: Rent or mortgage interest Property taxes Utilities Homeowner’s insurance Homeowner’s association (HOA) fees Cleaning services Can you deduct the cost of your home’s Internet? Yes. Like your other utilities, you’ll simply deduct a percentage of the cost of the Internet service for the year, including monthly fees, equipment, and installation. Just be aware that the IRS keeps a fairly close eye on these types of deductions. It never hurts to snap a few photos to document your workspace to demonstrate it’s used for business. While the home office deduction is beneficial for many, those looking for broader investment opportunities might consider the benefits of owning commercial property. Commercial real estate can not only enhance your business asset portfolio but also offer additional tax deductions such as depreciation, property tax, and interest deductions, which are significant compared to standard home office deductions. 2. Office supplies There are many things to buy for an office, from purchasing all new supplies to ordering more printer paper throughout the year. These are some typical tax-deductible office supplies. Paper Pens, highlighters, and pencils Toilet paper Business cards Furniture Mailing supplies Cleaning supplies Staplers Breakroom appliances Drinks for employees Mailing supplies may not fit into the office supplies category. If your small business sells homemade crafts and buys
Sunshine Tax: Taxes for Small Business in Florida
Florida is among the most tax-friendly states in America and has seen huge growth, especially in their tech economy. If you have a small or midsize business in the state of Florida, you may be shielded from many typical forms of small business taxes. But how can you know which tax laws apply to your business? This post will cover some of the more common tax questions related to taxes for small businesses in Florida. What Types of Tax Liabilities Are There for Florida Small Businesses? Florida business owners should be aware of the following: Corporations that do business in Florida must pay a 5.5% income tax Florida has a sales tax rate of 6% S Corporations are exempt from paying state income tax Sole proprietorships, partnerships, and most LLCs are exempt from state income tax Florida residents do not pay a state income tax Business owners should expect to pay federal income tax on business earnings Business conducted in other states may be subject to additional state laws Because so many businesses are exempt from Florida state income tax, many small business owners can benefit from having their business shielded from traditional tax liabilities. Below, we’ll go into greater detail regarding the rules for taxes for different types of business entities in the state of Florida. What Kinds of Taxes Can an S Corporation Expect to Pay in Florida? In Florida, S Corporations are not treated as traditional corporations when it comes to taxes. Thus, S Corporations do not pay the state’s 5.5% corporate tax. S Corporations are also exempt from federal income tax. How is this possible? With an S Corporation, the income earned by the business goes directly to the business owners. The owners are then expected to pay federal income tax based on the income they receive from their company. However, this income is not subject to Florida state tax. How Are Small Business LLCs Taxed in Florida? An LLC can be classified in one of two ways. Typically, LLCs are designated to be partnerships or disregarded entities. However, in this case, the LLC does not pay Florida income tax simply because it is not classified as a corporation. However, some LLCs can be classified as incorporated. If they are classified as an incorporated business, the LLC must pay the standard 5.5% Florida state income tax—or at least the 3.3% alternative minimum tax. LLCs classified as corporations will file Form F-1065 if one or more of its owners is a corporation. The actual business owner does not have to pay tax to the state of Florida for the income they personally receive from the business, except in those cases in which the LLC is incorporated. How Are Small Business Partnerships in Florida Taxed? Business partnerships can be classified as general partnerships, limited partnerships (LPs), and limited liability partnerships (LLPs). Regardless of these specific designations, none of these partnerships are required to pay state income tax in Florida. However, the partners of these businesses are required to pay federal income tax on the money they receive from these businesses, based on standard income tax rates. But because Florida does not tax ordinary income, business owners of partnerships are not required to pay Florida state income tax. What Tax Obligations Are There for Sole Proprietorships in Florida? Florida treats a sole proprietorship like a partnership. The only difference is that the state looks at the distributed income to one proprietor instead of many partners. Thus, like partnerships, sole proprietorships are shielded from traditional state income tax. This also means that the proprietor is expected to pay tax on any business income he or she receives, though only to the federal government. Since it is considered to be personal income, the individual does not pay state income taxes. What If You Have a Multi-State Business? How Are You Taxed? For most organizations, there are no required taxes for small businesses in Florida. However, if you own a business in Florida but earn money from another state, you are considered to have a nexus in those states. Therefore, in these situations, your business may be subject to the tax laws in those states. Because different states have different state tax laws, this can be confusing. If you earn money in multiple states, it may be prudent to review nexus rules to see how they may impact your business. Let xendoo Help You Looking for Florida bookkeeping services? xendoo can help. We understand the rules regarding taxes for small businesses in Florida and help you keep your books up-to-date. We can even help with Florida tax preparation. When you have questions, contact the experts at xendoo. [av_sidebar widget_area=’Blog Post Disclaimer’ av_uid=’av-om2w’]