You have many responsibilities as a small business owner. You have to manage your business and ensure you are taking full advantage of the deductions available to you. Sometimes it’s easy to forget about certain deductions to that you are entitled. But with some planning, you can ensure you get all the benefits you deserve. This blog post will discuss the most important deductions that small-business owners should take advantage of.
Common deductions for small businesses
You are likely always on the lookout for ways to cut taxes as a small business owner. Small businesses have many tax deductions. These are the most popular small business deductions.
1. Business expenses: This includes all expenses you incur while running your business.
2. You may be eligible to deduct your rent, mortgage interest, and utilities from your home office.
3. Vehicle expenses: You can deduct some of the fuel and maintenance costs if you use your vehicle for business purposes. If your vehicle is used solely for business purposes, you can deduct the depreciation.
4. Employer expenses: You can deduct the salaries and benefits of your employees as well as any other expenses that are related to their employment (such as training and education).
5. Contributions to retirement plans: You can deduct the contributions you make for your own retirement plan and those of your employees.
6. Premiums for health insurance: You can deduct premiums you have paid for yourself or your employees.
Self-Employment Tax Reductions
You are likely well aware of the tax deductions that you have available as a small business owner. Did you know there were also deductions for self-employment taxes?
For self-employed people, self-employment tax is equivalent to Medicare and Social Security taxes. Current self-employment tax rates are 15.3%. This includes 12.4% for Social Security and 2.9% for Medicare.
There are many deductions that can offset the self-employment tax cost. These are the most popular deductions:
1. Deduction for your home office: You can deduct some of your mortgage interest, property taxes, and rent.
2. Self-employed can deduct premiums for long-term and medical insurance.
3. Contributions to retirement plans: You can deduct these contributions from your self-employment income if you contribute to a retirement program such as a Solo 401(k) or SEP IRA.
4. Business expenses: You are able to deduct various business expenses, such as travel expenses, advertising expenses, and office supplies.
5. Self-employment tax deduction
Deductions from Retirement Plans
You can deduct expenses related to your retirement plan as a small business owner. These expenses can include costs associated with setting up and maintaining your retirement plan as well as contributions to it.
You can deduct the costs of setting up and managing a 401k plan. The amount that you contribute to the plan can be deducted up to $18,000 per annum.
You can deduct contributions to a traditional IRA up to a maximum of $5,500 per annum. You can also contribute $1,000 per year if you are 50 years old or older.
Contributions to a Roth IRA may be eligible for deduction. Your income level will determine how much you are allowed to deduct.
You can deduct any contributions you make to SIMPLE IRAs or SEP IRAs up to a maximum of $12,500 annually. You can also contribute $3,000 more per year if you are 50 years old or older.
Home Office Deductions
There are many tax deductions that you can use if you own a small business. The home office deduction is one of the most important.
If you use a part of your home solely for business purposes, you can deduct a portion or your mortgage and utilities. Your home office must be used exclusively for business purposes, such as meeting clients, maintaining an inventory, and filing paperwork.
The IRS has the formula to calculate the home office deduction. Make sure you consult a tax professional before using it.
Vehicle and Travel Deductions
You can deduct some of the expenses incurred by your business car for tax purposes. You can deduct your actual vehicle expenses or the standard mileage rate.
You will need to keep track of all your vehicle expenses. This will allow you to deduct the actual costs. The percentage of business you use your vehicle is what limits your total deduction.
It is easier to calculate the standard mileage rate. The IRS allows you to deduct 54c per mile for business purposes in 2018. This method doesn’t allow you to deduct actual vehicle expenses.
Keep meticulous records of all your driving, regardless of what you do. You might be asked by the IRS to prove that your deductions were legitimate. It’s therefore important to keep a detailed paper trail.
It’s crucial to get every tax deduction as a small business owner. You can save a lot of money when it comes to taxes by doing this. We hope you found this article helpful and will take the time to claim any deductions that may be available. Are there any other tax tips that you would like to share with small business owners? Please share them below!