When you register a business, you can get tax deductions on most expenses. In this article we’ll take a look at the most common tax deductions for small businesses.
When you run a business there are many expenses, ranging from renting offices to buying equipment, paying salaries and more. You can subtract these expenses from your taxable income to lower your overall tax bill.
Note that you still have to pay tax even though you make use of these tax deductions. But the fact that you are paying tax means that your business is earning money: You have more income than expenses. If you were getting a tax refund from the government, you wouldn’t be running a profitable business. So all in all, paying tax is a positive thing for your business.
Tax rules and tax rates will vary depending on what country your business is operating in, but we’ll take a look at general tax deductions and how to make use of them.
What types of expenses can I get tax deductions on?
Almost all expenses in a business can be deducted. For example, you can deduct office supplies or insurance expenses.
Let’s take a closer look at some tax deductions.
1. Home office
If you operate your small business from home, you might qualify for the home office deduction. To get a deduction, a percentage of your home must be used exclusively and regularly for business purposes. This deduction can cover a portion of your rent or mortgage, utilities, home insurance, and maintenance costs.
2. Vehicle and travel
If you use a vehicle for business purposes, you can deduct the associated costs. There are two methods to claim this deduction: the standard mileage rate and the actual costs method. The standard mileage rate allows you to deduct a set amount per mile driven for business purposes. The actual costs method lets you deduct a portion of expenses like gas, maintenance, repairs, insurance, and depreciation, based on the percentage of miles driven for business versus personal use.
When traveling for business purposes, the costs of transportation, hotel, and meals can be deducted. The expenses must be business related and necessary for your travels, you can’t book a lavish 5-star hotel and a limousine, for example.
3. Supplies and equipment
Expenses related to supplies and equipment necessary for running your business are deductible. This includes things like office supplies, software, tools, machinery, and even furniture.
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4.Salary and benefits
Salary paid to employees, bonuses, and commissions are deductible as business expenses. This also includes costs associated with employee benefits, such as health insurance and education.
This also includes contributions to retirement plans for employees. For small business owners, contributing to a retirement plan not only helps secure your financial future but also offers immediate tax benefits.
5. Business insurance
The cost of business insurance is fully deductible. This includes general liability insurance, property insurance, workers’ compensation insurance, and any other policies designed to protect your business from risk. Ensuring that your business has adequate insurance coverage is not only a wise decision but also a tax-efficient one.
6. Advertising and marketing
Expenses related to advertising and marketing your business, including website hosting fees, online advertising, business cards, merch and promotional materials, are fully deductible. This deduction can help your businesses grow while reducing your taxes.
7. Professional services
Fees paid for professional services such as help from a lawyer, an accountant or a consultant are deductible. These services are essential for many small businesses, especially when it comes to navigating complex legal and tax regulations or handing in your tax return.
8. Interest on loans
Interest paid on business loans is deductible. Whether the loan is for purchasing equipment, funding operations, or any other business-related purpose, the interest portion of the payment can be deducted.
See also: How to manage and keep track of business expenses
