Tax deduction or popularly known as ‘Tax write-off’ is an expense that entrepreneurs can get after deducting from their taxable income.
With the deduction of tax, there’s saving for investment and no one wants to pay more taxes whatsoever. By bookkeeping and tracking expenses, there will be more insight into a tax deduction that will help the company maintain capital for more investments.
Learn 10 business tax deduction tips for entrepreneurs in this article.
Necessity For Tax Deduction
For a small business, it’s true that they have to spend money to make money. However, startups need to realize that not every spend they make can bring double benefits. Therefore, finding strategies for tax deduction is crucial for SME-based (Small and Medium Sized) business people.
Venture owners also need to be careful because tax deductions should be justified from a business operations perspective so that it might not hamper legal issues. Justification of illegal tax deduction is not acceptable therefore, appropriateness in tax deduction should be focused on as well.
How Can You Deduct Income Taxes From Your Business
Here are 10 different ways you can follow to deduct income taxes for your business:
1. Travel Expenses
All expenses should be related to business travel which helps to deduct the taxes. It should also be away from the tax home which is the place where the company conducts or operates its business.
2. Usage of Vehicles
By making company vehicle usage solely for work-related purposes, entrepreneurs can deduct the expenses of maintaining it. Deducting actual miles traveled for business to total miles traveled can be a better alternative idea.
3. Home Office Expenses
There are ways to deduct taxes if you are running home-based small organizations. It varies according to the law of countries. In the USA, IRS law gives home-based SME owners to deduct five dollars per square foot of their home which is used for business purposes.
4. Office Supplies
Entrepreneurs can write off office supplies that are work-related like computers, pens, printers, etc as long as they use them for business purposes. However, they can only deduct the tax within the year in which they were purchased.
5. Phone and Internet Expenses
Venture owners can also deduct the expenses of phones and the internet. In the United States, business owners can cut half of their internet expenses if they are being solely used for their business usage.
6. Professional Service Fees
Any professional service fees that are important to the functionality of entrepreneur’s enterprises like legal, accounting, and bookkeeping services, are deductible for tax purposes. If accounting or even bookkeeping software is used for business usage, it qualifies for a tax deduction.
7. Education
Any educational expenses that are done in order to bring value to the organization are fully deductible for tax purposes. There’s only one requirement for that which it must improve skills and maintain professional expertise.
8. Child Care
The costs you incur for caring for children or adult dependents are tax-deductible. In the United States, if your own children are twelve years old or younger, you can write off costs associated with their care.
9. Advertising and Promotion
The cost of advertising and promotion is 100% deductible. For example, if you hire someone to design a business logo, the cost of printing business cards or brochures, etc.
10. Startup Expenses
In the United States, if entrepreneurs launched a new business venture in the latest tax year, they can deduct as much as $5,000 in startup expenses they incurred in the lead-up to their business launch.
Why It Matters?
Understanding tax and deduction strategies for SME-based entrepreneurs are crucial as they give them the opportunity to save capital for investment that can generate ROI. This will help their organization achieve milestones.
The more tax deductions your business can legitimately take, the lower its taxable profit will be. With this profit, they can generate a stronger financial structure and empower their budget plan to achieve the higher objectives gaining success.