Tax time is different from your favorite season of the year. However, saving money on taxes could be something that you are interested in.
The IRS offers hundreds of tax deductions to business owners and entrepreneurs each year. Many deductions reduce not only your income taxes but also your self-employment tax.
Reduced adjusted gross income can also help you lower your taxes in other ways. A lower adjusted gross may allow you to qualify for educational credits or other benefits. 1 Here’s a list of necessary business deductions to reduce your taxes.
Deduction 1: Taxes
2 Certain taxes are already included as part of your business expenses. Gasoline taxes are included in the cost of gasoline. If you pay sales taxes on office supplies, such as a delivery vehicle, they are included in the office expenses or the truck’s cost.
Other taxes can be deducted from your return as well. You can deduct state taxes on gross business income, federal and state payroll tax, personal property taxes on assets of your business, real estate tax on property of your business, and excise taxes you pay to the state. Federal income tax cannot be deducted.
Deduction #2 – Employee Benefits
You can deduct the cost of benefits you provide to your employees under qualified benefit plans.
Deduction #3: Vehicle expenses
Your vehicle expenses may be a valuable tax deduction if you use it for business. Track your business miles every time you drive to an office supply store, a client’s house, or go on business.
There are usually two options for calculating your vehicle expenses. You can use the standard mileage rate or deduct the actual costs of driving your vehicle to work. 4
If you want to claim this deduction, you must keep track of all your business and personal miles. It would be best to record the purpose of using your miles. It would be best to track all expenses to claim a deduction for actual expenses. This includes gas, oil, and service costs, interest on a vehicle loan, lease payments, depreciation, insurance, and other fees.
In some cases, you must track your actual expenses. For example, if the standard mileage rate was not used the first time you used the vehicle for business, you have claimed a Section 179 deduction or are operating five or more cars simultaneously. You can begin tracking your business mileage as soon as you leave your driveway for company business if you use your business out of your home. You can only track business mileage if your business has a central location. For example, you can count the business miles from that central location if it is a retail shop. You can’t deduct your trips to and from the store.
Deduction #4: Self-employed health insurance deduction
You must not be eligible for a health insurance benefit through your employer or spouse to qualify for the deduction. Coverage can include you, your spouse, and any dependents. The conclusion can be as high as your net business income.
Deduction #5 – First-year depreciation on business assets (Section 179)
For 2019, the Section 179 deduction limit was $1,000,000, and the bonus depreciation was 100%. Section 179 deductions were limited to $1,000,000 in 2019, and bonus depreciation was 100%.
Deduction #6 – Continued depreciation of business assets
You can deduct the current year’s depreciation of assets that you bought in the past but didn’t fully expense in the previous year.
Deduction #7 – Home Office deduction
You may be eligible for a deduction if you use a part of your house as a home office or any other purpose for business. There are some rules you’ll need to follow. The space you designate as your office at home must, in most cases, be dedicated to your business. The area can be a partial room. Imagine using half of your living room as a home office. You can deduct costs based on how much space you dedicate to the business.
You may not be required to comply with the exclusive-use rule if your business qualifies for the IRS. This is the case if your home is used to store product samples or inventory or if you operate a daycare.
You can deduct indirect and direct costs when you claim your home office. Direct expenses are only those that pertain to your home office. For example, painting or repairing your office. Direct payments are claimed at 100 percent.
For your entire house, indirect expenses are a percentage of what you pay in electricity, rent, and other costs. Divide your house’s total area by the home office’s square footage to find the percentage. The IRS offers another option if you want to avoid going through the trouble of finding utility bills and receipts. The IRS has allowed a simplified deduction for home offices since 2013. You can deduct $5 per square foot for your home office up to 300 square feet. 8
Deduction #8 – Internet and other services fees
Monthly Internet fees can add up. Your costs for maintaining your computer at work could also add up. You might also have to pay for subscriptions such as professional references, virus, and malware protection, or subscription software.
Deduction #9 – Phone service
The Internal Revenue Service will not allow you to claim the cost of a landline telephone if you only use it for business or personal purposes. You can, however, deduct long-distance charges incurred by your company.