Every business owner wants to save money. Tax deductions are one of the best ways to do that exactly! A deduction that reduces an individual’s or organization’s tax liability by reducing taxable income is called a tax deduction. These deductions are those expenses that organizations have to face during the year and can be subtracted from the organization’s gross income.
According to the U.S. Internal Revenue Service (IRS), in Publication 535, chapter 1, page 3, Business Expenses, “An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business.”
We have prepared a comprehensive list of write-offs and deductions that are commonly available to businesses that are organized as partnerships or limited liability companies (LLCs). Some of these are directly related to running a business, and some are more personal deductions that a business owner should be aware of.
For some of the mentioned tax deductions, you might wanna consider consulting a tax advisor or CPA before claiming a deduction on your tax return. To claim these deductions, you must keep accurate records and keep your books up to date. Let’s get started!
Promotion and Advertisement
The cost of promotion and advertisement is 100% tax-deductible. Things like:
- Hiring a logo designer
- Cost of printing business cards or brochures
- Purchasing ad space in print or online media
- Sending cards to clients
- Launching a new website
- Running an online marketing campaign
- Sponsoring an event
Meanwhile, amounts paid for lobbying or sponsor political campaigns or events are not deductible.
Food & Beverage
Qualifying food and beverage costs are generally 50% deductible. To be eligible for the deduction:
- Expenditures must be integral to the operation of your business.
- The meal should not be sumptuous or lavish under the circumstances.
- The owner of the enterprise or an employee must attend the meal.
You may also deduct 50% of the cost of meals provided to the employees, such as purchasing pizza when your team is overtime. Meals at office picnic and parties are 100% tax-deductible. What you should do is keep the proper documentation of the outing that includes the amount of each expense, date, time, palace, and the person you dined with.
Business insurance premiums are tax-deductible. This includes:
- Coverage of the property for your furniture, facilities, and buildings.
- Liability coverage
- Group health, dental and vision insurance for employees
- Professional liability or malpractice insurance
- Workers compensation coverage
- Business vehicles auto insurance
- Life insurance for employees, as long as the business or business owner is not a beneficiary on the policy
- Business interruption insurance
Having separate bank accounts and credit cards for your business always makes sense. The annual or monthly fee, transfer fee, or overdraft fee are tax-deductible. Payment made by third-party payment processors, such as PayPal or Stripe is also tax-deductible.
Personal bank accounts or credit cards are not tax-deductible.
Using Your Vehicle For Business
Using your vehicle for business is tax-deductible, if you use your vehicle for business only, you will be able to deduct the entire cost of operating the vehicle. If you use your vehicle for business and personal use, you can only deduct the costs associated with business-related usage.
Many businesses hire a freelancer or an independent contractor to help them, this comes in as tax-deductible. You’ll need to send them a Form 1099-NEC by January 31st of the following year if you are paying them $600 or more.
As per the depreciation rules, you are required to spread the costs of furniture, equipment, and other business assets over the years you’ll use them rather than deducting the full cost in a single hit.
For quicker tax benefits, it is more attractive for business owners to expanse these items upfront. Fortunately, there are some ways to write-off the full cost in one year like using De minimis safe harbor election, Section 179 deduction, and Bonus depreciation.
Legal And Professional Fees
To run a business in a smooth and effective manner you might need legal and professional help from time-to-time. The fee you pay for the legal and professional support comes in as tax-deductible. These include fees charged by lawyers, accountants, bookkeepers, tax preparers like UltimateTax, etc.
Many businesses rent a location or equipment for their business, the rental paid for the location of equipment is tax-deductible. However, you cannot deduct the rent paid for your house even as a business expense if you use it as an office. You can be deducted as a part of home office expenses.
Benefits and Salaries
While meeting a few criteria, salaries, benefits, and even vacation time paid to employees are generally tax-deductible, these criteria include:
- The “employee” is not the sole owner, an associate, or a member of the LLC.
- The salary is reasonable, ordinary, and necessary
- The services were actually provided
Internet And Telephone Expenses
Telephone and internet service are deductible business expenses. What you might want to know is that using your first line at home does not come in as tax-deductible, for that you might consider having a second line that is devoted to the business.
If you use your mobile phone and internet service for both personal and business use, only the percentage allocable to business use is deductible.
A trip that is ordinary, necessary, and away from your tax home comes in as tax-deductible.
Deductible, IRS approved business travel expenses include:
- Traveling by plane, train, bus, or car to and from your destination.
- Using your car while at a business location
- Parking and toll fees
- The cost of taxis and other means of transportation used for business purposes.
- Meals and lodging
- Dry cleaning while on a business trip
- Business calls
- Shipment of luggage and samples or exhibition materials to your destination.
- Other regular and similar necessities related to your business trip.
And that’s it! We have listed the most important tax-deductible things that every business owner should know and utilize as tax deductions are pretty important to minimize the amount of tax you have to pay.