Feb 13, 2025

Know Your Business Deductions

Many business owners don’t take full advantage of the tax deductions available to them, even though the deductions can help lower how much tax the business owes each year. Read through for insight into business deductions and learn about the important role they play in reducing your taxes.

One of the worst things we can do as taxpayers is assume we know everything. There’s always more to learn, and as much as you might know about taxes, you may be missing out on key tax deductions just because you haven’t heard about them.

Tax deductions to consider

Believe it or not, there are a lot of tax deductions out there. Depending on the type of business you run, you might be eligible for certain tax deductions that you never considered before. Here are some deduction opportunities you should be aware of before the next tax season!

Business meals

You can deduct food expenses as long as your meals are work-related. Hold on to your receipts, and maintain an accurate log of the money you spend on your meals. Update your records with the date and location of your food-related expenses. Also, make a note detailing the business relationship of who was with you.

Business travel

The IRS has very strict rules when it comes to claiming business travel deductions. For starters, your trip must be an overnight event. It can be deducted by a business only if you traveled at least 100 miles away from your place of residence. Also, anything you try to deduct must be within the parameters of ordinary and necessary expenses.

It’s best to maintain a record of all expenses associated with your business trip. These receipts will be a lifesaver when it comes time to file your taxes, especially if the IRS audits you. Some examples of reasonable costs include transportation — like airfare, train tickets, ride shares, taxis and car rentals — as well as money spent on hotels or Airbnbs, among other expenses.

Employee salaries and benefits

Have you considered tax deductions pertaining to employee salaries and benefits? They exist, but the cost of these business-related items can be deducted only if you employ people other than yourself. In addition to salaries and benefits, you can also deduct paid time off, commissions, bonuses and payroll-related employment taxes.

Business credit card and loan interest

If you want to deduct interest from business credit cards and loans, make sure you adhere to the rules set forth by the IRS. You have to be the person who is legally liable for the debt. A debtor-and-creditor relationship must exist between you and your lender. Additionally, you and your lender must have the understanding that you intended to repay the debt you owe.

Independent contractors

The money that you pay for business-related services — namely from independent contractors and freelancers — can also be written off on your taxes. However, keep in mind that any of the contractors you pay cannot be employees of your company.

Also, the services they perform must be for your business, not for personal reasons. If you have paid any contractors or freelancers more than $600 in a given tax year, make sure you fill out Form 1099-NEC. Otherwise, you’ll run the risk of penalties and fees imposed by the IRS.

Business bank fees

Has your bank ever charged you a monthly fee in exchange for access to the bank’s services? What about overdraft fees or wire transfer fees? If so, you can deduct these fees from your taxes as long as the fees pertain to business matters. Also, if you sell products and collect money via a third-party payment vendor, like PayPal or Square, those fees are also eligible for tax deductions.

Startup business expenses

If you recently launched your company, then you already know how expensive the costs of starting your business can be. The good news is that the IRS permits new business owners to deduct 100% of all startup expenses, though the limit is $5,000. You can deduct expenses that stem from hiring a business consultant, traveling to conferences, attending training events, building a website and launching a marketing campaign.

Business losses

Did you lose money during any given tax year? If so, the IRS says you can write off that money as a loss. As the owner of a sole proprietorship or an LLC, you can write off your losses in full. Plus, if you experience business-related losses for many years in a row, you will not be susceptible to penalties.

Legal and professional fees

Have you paid for professional services to assist with your business? From accountants and lawyers to bookkeepers and other professionals, you might be able to deduct the costs of these services. However, these expenses need to relate to your business in necessary and relevant ways.

Charitable contributions

If at any point during a given tax year your business donated money to a charity, you can apply this donation to your taxes and lower your tax liability in that way. That said, please note that you can only write off 60% of your donations to charity if you made a cash contribution. It must have been donated to a qualifying charity as well.

Retirement plan contributions

As a business owner, it’s likely that you are the only person contributing to your retirement plan. If that’s the case, the IRS lets business owners like you deduct these contributions from your income taxes if you have an eligible retirement account. Contact a financial professional to see how each options works.

Depreciation

Do you own any depreciating business assets? The most common depreciating business asset is real estate, like your office, though this is not all that depreciating assets entail. Ultimately, if you have any assets that depreciate, you can deduct them as long as they qualify in the eyes of the IRS.

For qualifying assets, fill out Form 4562 and send it to the IRS along with your tax return. There are some restrictions, like only being able to claim depreciation-related deductions for computers and cars over a five-year period. Likewise, with furniture and appliances, you can only write off the depreciation over the course of seven years.

Don’t hesitate to contact professionals for assistance

This is just a summary of complex provisions. There are many more details, and specific limits can change, often with little warning. If you’re not sure about certain business-related tax deductions, consider reaching out to a professional who can help you understand whether or not your assets qualify for depreciation.

Tax advisers can let you know how much you can write off on your taxes based on local laws and which tax forms you need to fill out. In general, make sure you maintain documentation regarding your expenses throughout each tax year.

The better your records, the easier your life will be when tax time rolls around. Plus, if you are ever audited by the IRS, you’ll have documented proof of the expenses you had and where you spent that money.

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