Tax Deductions and Your Small Business
Taxes are an inevitable — and painful — part of every business owner's life. But there are ways to reduce, if not eliminate, your company's tax burden if you know how to use business-expense tax deductions to your advantage.
Most business owners know they owe taxes only on their net business profit — that is, their total profits after they subtract their deductions. As a result, knowing how to take full advantage of your deductible business expenses can dramatically lower your taxable profits. It's even possible to combine business with pleasure and to enjoy certain tax-deductible lifestyle perks — such as a sports car you use for work or a business trip to the Bahamas.
You can legally deduct a number of expenses commonly associated with your trade or business. Allowable deductions include:
- Employee wages and most employee benefits
- Rent or lease payments
- Interest on business loans
- Real estate taxes on business property
- State, local and foreign income taxes assessed to your business
- Business insurance
- Advertising and promotion costs
- Employee education and training
- Education to maintain or improve your own required business skills
- Legal and professional fees
- Utilities
- Telephone costs
- Office repairs
Read "Ordinary and Necessary" Business Expenses for more details on business expenses.
If you have a home-based business or a home office, you can also deduct a percentage of your residential real estate taxes, utilities and telephone expenses. In addition, your auto, meal, travel and entertainment expenses may be deductible if they relate directly to your business. Read IRS Advice on Business Use of Your Home for more information.
Finally, here's a friendly reminder: Always maintain complete and accurate business records to document your deposits, income, expenses and deductions. If the Internal Revenue Service audits your business, it may require you to demonstrate that each entry on your tax return is correct.
Tax laws change annually, and they can be very complex. Always consult your accountant or tax attorney for assistance, strategies and recommendations for your individual situation.
