Small Business Deductions You Can Use to Pay Less Taxes

Small business owners have many ways that they can legally reduce their taxes. The Federal government gives a lot of help to people who have small businesses that others do not get. fKnowing which deductions apply to your business will help you to keep more of your hard-earned money in your pocket.

Startup Costs

Getting ready to open the doors of your new business is going to cost - even if you start in your own home. You can deduct up to $5,000 of the cost of researching the creation of the business - or of acquiring one. Another $5,000 can be deducted from the costs of establishing the business such as getting incorporated or creating a partnership. 

Qualifications for a Business Deduction

Although the IRS does permit a lot of deductions, they do have some basic requirements. The first term used to describe them is that they must be "ordinary," which means that it is common to your industry. The second term is "necessary," which means that it is helpful and appropriate for your business.

Deductible vs. Capital Expenses

Some items that you use in your business will not be considered deductible. Instead, you will need to capitalize on them, which means that you will only be allowed to subtract the depreciated amount over a several year span. Tools, for instance, can be deducted if they are required for your business and cost less than $200, or if they have a life expectancy of one year or less. Items that must be capitalized include things such as vehicles, changing a heating system, computers, etc.

Vehicle Use

If you use a vehicle for your business, you can capitalize on it and subtract the depreciated value on your tax form. Mileage is deductible at a rate of 58 cents per mile in 2019. If the vehicle is used for personal and business use, the percentage of business use applies to all costs of operating it and you can only apply that percentage rate for tax purposes.

Meals and Entertainment

You can claim a deduction on meals and entertainment, but there are some limits - only up to 50% of those costs can be deducted. The cost must be for business purposes and the costs must be reasonable. There must be a profit factor involved - such as taking clients out to dinner and it includes when you are reimbursing employees for allowable meal expenses. Parking costs, cover charges, rent costs if a room is rented for a party, and tips are included. You can be reimbursed up to 80% of the cost of meals your employees eat while on business trips.

Advertising Costs

If your advertising campaigns involve "reasonable" costs, you can generally subtract it. You can also deduct the cost of what is called "goodwill advertising" when you do so to continue to promote your name or your business to help a cause. As an example, you might pay for advertising encouraging people to pay for such groups as the Red Cross, United Way, or to get them to buy U.S. Savings Bonds, etc.

These are just a few of the possible deductions you might get with your small business. The professional staff at Taxfyle are glad to help you understand and claim as many deductions as possible. Contact them today to find out if you can claim more deductions.