The tax season can be very stressful for small business owners. It involves shelling loads of money to the taxman.
The problem with shelling out money is that it is one of the most significant challenges facing small business owners. Luckily the government offers a helping hand to small businesses in the form of tax write-offs or tax reductions.
What is a tax write-off?
A tax write-off, otherwise referred to as a tax deduction, is an expense deducted from your taxable income. If an expense qualifies as deductible per the IRS criteria, the expense is deducted from your taxable income before computing your taxes.
Maximizing your deductibles can translate into considerable savings every tax season when all deductibles are considered. However, it is important to work with skilled financial advisers such as Ridgewood.com to help you understand the business expenses that qualify for tax write-offs and help you save money.
Six possible legal tax write-offs
- Qualified business income for Tax Write-Offs
Under the 2018 tax reform law, small business owners can deduct 20% of the year’s income before applying the ordinary income tax rate. This means if your small business generates a profit of $100,000 in a year, you can deduct $20,000 before calculating the applicable tax.
However, this benefit is limited to business owners making anything below $157,500 for single filers or $315,000 for partnerships. You may want to reach out to your financial advisor to see if you’re eligible for this tax write-off.
- Home office
As the business changes, many people find it feasible to turn a spare room into your house or apartment into an office. If you are one of those people, there is good news for you. Using your home as an office space may qualify as a deductible expense on your taxable income.
Under this arrangement, small business owners can deduct up to $5 for every square foot of their home office with a limit of 300 square feet. However, the IRS allows you to enjoy this tax deduction if you use your home office exclusively for business regularly. If your home office doubles as a guest room for your visitors, you may lose out on the tax write-off.
- Property rent
The cost of renting or leasing business space can take a considerable chunk of your expenses, and a break is always welcome. The cost of leasing or renting a business space is fully deductible.
This deduction on property rent is not limited to an office or warehouse. If you rent equipment for your business, the kit also qualifies for deductions. Temporary workspaces such as WeWork or other co-working spaces are also tax-deductible.
The cost of education is fully deductible if the education adds value to the business. To establish if your class or training qualifies as a deductible in the IRS, make sure you identify whether the skills you acquire through the training are relevant to your current business.
Keep in mind that while education costs are deductible, education outside your business’s realm does not qualify as a deductible.
- Work-related car use
If you use your car for work-related purposes exclusively, all the costs associated with its operation and maintenance qualify as tax write-offs. However, if your car is used for business and running personal errands, only the business-related expenses qualify for tax write-offs.
There are two ways of claiming the deduction; using the IRS set standard mileage rate or adding up all your car-related expenses for the year. The second option can take a little more work as it involves keeping a detailed record of every expense plus the receipts.
- Professional fees
Depending on the nature of your business, you may require the services of a wide array of professionals. If the professional services sought are related to running your business, the expenses involved qualify for a tax write-off.
These professionals may include lawyers, financial planners, business coaches, bookkeepers, among others.
Tax write-offs are a good way to lower your tax bill or reduce your taxable income. However, working with a skilled business advisor can help you identify all possible tax deductibles for your business that could see you saving hundreds or thousands of dollars per tax season.