10 Oct Understanding the basics of small business tax write-offs
Understanding the basics of small business tax write-offs
When it comes to small business tax write-offs, the past business performance is a major determining factor for the types of deductions, tax write-offs etc that business is eligible for. However, in general, a small business offers multiple opportunities for tax deductions if all the IRS rules are followed.
The key here is to hire a qualified tax preparer such as Alba Translations CPA to let you understand what all is deductible for your small business and allow you to take the benefit of the same.
Below is the list of some of the small business tax reductions/write-offs that one should know about-
- Office supplies
This is something most people often forget about. While filing the tax, remember that you can deduct the business supplies you buy. Just keep all the receipts and documents in order as these expenditures will offset your taxable business income.
- Furniture supplies
In most cases, the office-furniture acquisitions offer two separate choices-
- Deducting 100 percent of the cost within the year of the furniture purchase
- Deducting a portion of the furniture expense over seven years, also called as the depreciation value
If you wish you take the entire cost in a single financial year, you are required to use the Section 179 deduction. However, if you choose to depreciate the furniture costs, you don’t have the option of splitting the cost into equal portions over the depreciation period. In such as case, you are required to use an IRS chart in order to deduce the accurate business tax write off calculations.
- Auto expenses
Small businesses can deduct various auto expenses such as mileage, parking fees and tolls for business use of your car. To take the benefit of auto tax write-offs, it is important to keep track of the mileage, distances, destination, business purpose etc.
- Professional and legal business expenses
For small businesses, professional and legal expenses are generally deductible. However, if the costs are part of startup expenses, the same needs to be amortized over 60 months period.
- Gifts and advertising cost
For small businesses, client gifts are deductible up to only $25 per gift. As for the advertising budget, deductions taken for costs that cover multiple-year contracts must be spread evenly over all the contract years.
- Business use of Home
In case you are using the part of the house for business, you enjoy the benefit of deducting this expense as the business tax write-offs. These expenses generally include utilities, mortgage interest, repairs, and depreciation.
Insurance premiums for the small business for one year or less are generally deductible while excess prepaid premiums are deductible in subsequent years.
As a general rule, to be deductible and come under small business tax write-offs category, a business expense must be both necessary and ordinary. Furthermore, an expense need not be indispensable to come under the necessary category.