One of the supernatural but beneficial ways to convert your small business into a profitable organization is to identify tax-deductible expenses. More interestingly, you do not need to work hard to achieve this target as an experienced tax accountant NYC can make it possible for you. The tax deductions for small business rules are available to all those who make independent contractor incomes or work as self-employed individuals. Here, the issue is that many business owners do not know much about these tax deductions. Therefore, they lose some extraordinary benefits, which they can avail themselves of quite easily. Keep reading this article to learn about these deductions and utilize them to become profitable in the next financial year.
- As described earlier, business owners do not know much about these tax deductions. Another reason that keeps them away from these benefits is the lack of recording of all business details, and they do not keep records of expenses, incomes, and other information properly. Mainly, it is due to the non-availability of tax accountants NYC. So, if you want to survive as a business and extract benefits by increasing profits, you need tax consultants in NYC.
- Overall, awareness about available tax deductions is necessary. Keep reading this article if you want to know the maximum tax deductions.
The most beneficial tax deductions for small business
First of all, we need to be informed about the type of business in the United States. Generally, the federal and state governments offer deductions to S-Corps, C-Corps, LLCs, sole proprietorships, and partnerships. However, the rules differ for each business. You can get the required information related to your business from bookkeepers in NYC, whether hired by you or partnered with a company that offers accounting and business licensing services NYC.
Let us start exploring tax-deductible expenses for a business!
1. Startup and organizational costs
The first tax deduction that we can enjoy as a small business is not a tax deduction. It comes with a caveat. First, we need to understand that startup costs are not generated through the business, and it is an investment that business owners make to start a business. Therefore, the accounting experts consider these expenses as capital expenses. The IRS also confirms it, and we can see in IRS Publication chapter seven and eight.
Here, it is necessary to mention that tax deductions for small business against capital expenses can be availed after several years when amortization starts. This way, businesses can identify the actual performance after calculating profits after several years.
2. Inventory costs
Before understanding inventory costs, we need to understand inventory-based businesses. All those organizations where manufacturing or purchasing is a key business, as they produce or purchase products to resell them. While doing this business, inventory costs will be a part of tax-deductible expenses. Mainly these costs are called cost of goods manufactured and cost of goods sold. To calculate these costs, the bookkeepers in NYC value the inventory at the start of raw material and the end of the year in finished goods.
Generally, the following expenses are a part of tax-deductible expenses:
- The cost of raw material for a manufacturing business
- The costs of products for a reselling business
- Freight charges
- Storage costs
- Direct labor costs
- Overheads in the factory
3. Utilities
All types of utilities that you use in the office or factory are tax-deductible expenses. Electricity, water, telephones, and trash are included in utility expenses. In the case of working from your home, the first telephone line is excluded from tax deductions, and however, other subsequent landlines are a part of tax deductions.
4. Insurance
- All businesses need to have some insurances to keep the company’s future secure and protected in case of any incident. Not all, but many insurances expenses are a part of tax deductions. Business continuation insurance, owners’ health, and some of his other insurances are 100% deductible. Liability insurance, worker’s compensation insurance, property insurance, business-provided employee life insurance, auto insurance, business interruption insurance, and malpractice insurances are also completely deductible.
- The story does not end after excluding health insurance from taxes; a small employer can also get 50% of the tax credit through a qualified small employer health reimbursement arrangement (QSEHRA)
5. Business property rent
Rent payments in the case of rented business property are deducted from taxes. So, whether you pay rent or against the lease, you are eligible to get tax deductions. In the case of working from home, you are also entitled to get some benefits in the form of tax deductions for small business under the rules defined in IRS Publication 578. Some deductible home business expenses are utilities, depreciation, insurance, repairs, and mortgage interest.
6. Auto expenses
All car expenses belonging to the business are tax-deductible expenses. However, in this particular scenario, you need to provide proof of it. With that, miles tracking should also be recorded to avail of this deduction. If you have not made it possible, you need to follow the instructions given by IRS and mentioned in Publication 463. This publication consists of entertainment, gift, travel, and car expenses.
7. Rent and equipment and machinery depreciation
Machinery and equipment costs are tax deductibles in case of leasing them. Under this head, every type of equipment and machinery from computer accessories to vehicles can be mentioned. Furthermore, depreciation costs of this equipment will also be tax-deductible expenses. Section 179 of IRS tells you about all these types of expenses.
8. Office supplies
Companies spend a handsome amount buying office supplies, such as paper, pens, staples, punch machines, and many other things. You can also deduct this cost from your taxes. Office furniture is also a part of office supplies, so that the same rule will be implemented on it.
9. Software subscription
Businesses use numerous apps and software to run the business efficiently. You can make the subscription fees of these applications a part of Other Common Business Expenses under the head of Miscellaneous Expenses, which are tax-deductible.
10. Advertising and marketing
Advertising and marketing expenses to promote your business are also excluded from taxes. However, you need to prove these expenses through documentation. Hiring a freelancer to accomplish some tasks is also a part of these expenses.
11. Business entertainment
Arranging entertaining events and meals for the staff on behalf of the employer need a handsome amount. However, IRS allows the companies to keep them away from taxes. There are some restrictions and rules to follow, so you need to keep them in your mind to avoid complications. Whether hired or engaged as a financial advisor, Tax accountant NYC guides you about the percentage of these deductions.
12. Travel expenses
All the traveling expenses to run the business smoothly are tax-deductible. However, the officials consider only those travel expenses deductible in which you travel to or from your business city.
13. Interest
Small businesses take numerous types of loans to run the business smoothly. The interest payments against these loans are tax-deductible. However, those loans fall under the category you take to cover business expenses. Furthermore, the companies need to establish that they are legally liable to borrow loans from the lender. Another important aspect is that the relationship between the lender and business owner must be a “debtor/creditor” relationship. Those loans will not be entertained that you take from your friends or relatives.
14. Bad debt
If you have given a loan to your vendor or employee, but you could not receive it back, it is called a bad debt, and authorities permit you to make it a part of tax-deductible expenses. However, business debts can be converted into bad debts, and loans lent to friends or relatives do not fall in this category.
Here are some examples of bad debts:
- Loans to employees, suppliers, clients, and distributors
- Credit sales
- Business loan guarantees
15. Taxes
This term sounds strange. However, the fact is that in case of incurring taxes only because you run a business, it will be a part of deductibles. All types of federal, state, and local taxes are a part of it against your income, and examples are state unemployment tax, FUTA, and FICA.
16. Employee salaries
Yes, employee wages care tax-deductible expenses, including commissions and bonuses. However, you cannot make the salaries of the owner, partner, LLC, and the sole proprietor a part of this section. With that, if you spend money to provide some benefits to your employees, you can also make them deductible taxes. Some examples are qualified retirement plan account, life insurance adoption, dependent care, and education assistance. IRS also allows giving gifts to the employees and excluding these gifts from taxes. However, the maximum amount of this gift for an individual is up to $25.
17. Contracted labor
The salaries or fees given to freelancers, remote workers, and independent contracts are also tax-deductible expenses.
18. Legal and professional fees
The salaries and fees of hired legal or accounting professionals are also 100% deductible.
How does a small business claim tax deduction?
Mainly, IRS provides you a Schedule C Tax Form that you need to fill as a sole proprietorship and manage tax deductibles. However, you can find difficulties in completing this form. Hiring tax accountants NYC, engaging tax consultants in NYC, or assigning this task completion to your accountants are the best solutions to complete this form and avail some extraordinary benefits as a taxpayer business.
Author Bio
Villie Walters Ramirez is a 32-year-old sales assistant at a tax king who enjoys accounting and bookkeeping. She is also a tax accountant NYC. She has a post-graduate degree in accounting, and she has a severe phobia of cats. Furthermore, She enjoys travelling A lot.
