If you have a small business, keeping it up and running can be challenging. Small business taxes are tricky, especially in the first few years of operation.
Tax deductions reduce your business’s gross income and what’s reported on your taxes. They can be used by both individuals and companies and help lower taxable income. It would be best if you had every advantage in a working environment as competitive as the American marketplace.
However, with all the different laws and rules related to taxes and small businesses, it can be easy for an entrepreneur to make a mistake when filing.
Read on to find out some of the best small business tax deductions.
Home Office Deduction
You can get tax credits through a home office deduction if you work or have a small business at home. It is available to self-employed taxpayers and employees who work from home and can be a huge tax break.
The deduction is based on the percentage of your home used for business. For example, suppose your home office occupies 10% of your home’s total square footage. In that case, you can deduct 10% of your qualifying home-related expenses.
To qualify for the home office and business tax deductions, you must use a part of your home for business alone. Your home office should be used regularly for business-related activities. Additionally, your home office must be your principal place of business, meaning you can’t have a separate office location outside your home.
Qualified Business Income Deduction
A qualified business income deduction allows businesses to deduct up to 20% of their business income. This deduction is available to companies of all sizes, can lower your taxes, and be significant savings for small businesses.
The qualified business income deduction is called the “pass-through deduction.” It is available for sole proprietors, partnerships, small corporations, and LLCs. Your business must have less than $315,000 in annual revenue to qualify (or $157,500 if you are a single-owner LLC).
Self-employed Health Insurance Deduction
Suppose you’re self-employed and paying for your health insurance. In that case, you can deduct the cost of your premiums on your federal income tax return. Business tax deductions are available when you buy health insurance through the Affordable Care Act marketplace or from an insurance company.
To qualify, you must enroll in a plan that covers you and your spouse if you’re married. That also applies to your dependent children.
Retirement Plan Deduction
You can deduct some or all the costs if you have a retirement plan for yourself and your employees. It can be significant savings, especially if you have many employees.
There are a few different types of retirement plans. Make sure to talk to your accountant or financial advisor to see if you qualify for the deduction.
Lower Your Taxes Through These Small Business Tax Deductions
As a small business owner, you must be aware of the various small business tax deductions you’re entitled to. By taking advantage of these deductions, you can lower your taxes, save money and reinvest it into your business.
Each of these deductions can save small businesses money, so it’s essential to research and take advantage of all the available deductions.
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