Taxes are a fact of life for small businesses. Fortunately, there are many possible small business tax write-offs, also called tax deductions, that can lower the tax burden and save money for owners to use in other ways to grow their businesses.
How do Small Business Tax Write-offs Work?
Small business tax write-offs are those deductions that are considered by the IRS to be legitimate and claimable expenses that will lower the business’s taxable income. A key role of a professional tax advisor is to know which expenses are deductible and which ones are not.
It is important to keep accurate records of all business-related expenses throughout the year to facilitate preparing year-end tax filings. That way, potential write-offs won’t be missed.
What Business Expenses are Eligible for Small Business Tax Write-offs
According to the IRS, common small business tax write-offs include:
- Inventory. A business that manufactures products or purchases them for resale can deduct the cost of the inventory or the cost of goods sold. Those costs can include freight, storage, direct labor costs, and factory overhead.
- Business insurance. Among the insurance types that are included are business owner’s health insurance, business continuation insurance, property insurance, company auto insurance, and liability insurance.
- Business property rent.
- Business auto expenses. However, records must show business uses and mileage recorded.
- Business travel expenses.
- Rent and depreciation on machinery and equipment.
- Depreciation for office equipment, furniture, company-owned vehicles, and anything with an extended life.
- Office furniture.
- Office operations, supplies, and storage expenses.
- Software subscriptions.
- Advertising and marketing expenses.
- Certain business entertainment expenses.
- Interest payments on small business loans.
- Bad debt expenses.
- Tax payments including payments made to federal, state, and local taxing authorities, along with any real estate, sales, and employer taxes.
- Employee salaries and contracted labor costs.
- Expenses for employee benefit programs and employee gifts.
- Legal and professional fees.
Why Use a CPA to Deal with Small Business Tax Write-offs
First, tax laws change frequently, so it takes an experienced professional to stay on top of the changes. Second, the list of potential tax deductions is obviously a long one and it can be easy to miss possible write-offs, thus leaving money on the table. And third, the processes of record keeping, accounting for deductions, and tax filing can be complex.
CPAs are experts in handling tax and financial compliance, including protecting against potentially painful IRS audits. They offer tax filing, planning, and tax advice. They can assist with budgets, financial risk management issues, and advice on complicated financial matters. They can monitor your books and help prevent fraud. They can handle bookkeeping functions including creating, maintaining, and reviewing financial records.
A small business owner should first consider hiring a CPA before starting a business to help set up the business using the most advantageous business structure and determine how to structure your accounting practices. Second, one should be considered before tax time to ensure that tax laws are complied with and that all possible small business tax write-offs are taken. And third, when you decide to acquire, merge, or close shop.
Choose An Expert Accounting and Strategic Management Partner
Contact Doerhoff & Associates CPA, Based in Jefferson City, MO. We can streamline your day-to-day accounting, bank reconciliation, financial statements, and forecasting. We can provide business advice and planning to meet the challenges of growing your business. We can help you account for, report, and take advantage of all the possible small business tax write-offs.