What are the 15 Biggest Tax Write Offs for a Small Business?

Are you aware that small businesses often overlook significant tax savings opportunities? Let’s change that! 

This video is all about the 15 biggest tax write-offs for small businesses in 2024, designed to help you save money and reduce your tax liability.

How Do Business Tax Deductions Work?:

• Tax deductions reduce your taxable income. Essentially, the income you make is lowered by the expenses you’ve incurred, which means you pay less in taxes.

What Qualifies as a Business Expense?:

• Any cost that is both ordinary (common in your business) and necessary (helpful and appropriate for your business) qualifies. This includes things like office supplies, rent, utilities, and employee salaries.

Concept of 100% Tax Deductions and the 1099 Form:

• Certain expenses can be deducted at 100%, like some types of business meals and operational expenses. The 1099 form is used to report income from self-employment earnings, interest, dividends, and more, highlighting the need for accurate record-keeping.

How do we write off of Previous Years’ Taxes? 

• Sometimes, businesses can deduct expenses from previous years if they weren’t claimed before. This requires amending past tax returns, offering a chance to recover some costs. You can even use previous years’ losses to use to offset against current year’s income. However, there are rules that need to be followed when it comes to using Net operating losses( NOLs) and how to use carry forwards and carrybacks.

So what are those top 15 tax deductions? 

1. Business Meals: To deduct business meal expenses, they must be directly related to or associated with the business. The IRS allows you to deduct 50% of the meal cost, provided it’s not extravagant. Keep receipts and note the purpose of the meal and who attended.

2. Work-Related Travel Expenses: Travel expenses are deductible when you are traveling away from your regular place of business longer than an ordinary day’s work and you need to sleep or rest to meet the demands of your work while away. Eligible expenses include transportation, lodging, and meals. The travel must be primarily for business.

3. Work-Related Car Use: You can deduct car expenses if you use your car for business. This includes driving to meet clients or running business errands. You can choose between tracking all car-related expenses and deducting a portion based on business use, or using the standard mileage rate given by the IRS, multiplying the business miles driven by this rate.

4. Business Insurance: Types of deductible insurance for businesses include general liability insurance, professional liability insurance, workers’ compensation, property insurance, and auto insurance for business vehicles. These insurances protect your business from various risks and losses, and their premiums are generally fully deductible.

5. Home Office Expenses: For your home office to qualify for a deduction, it must be used regularly and exclusively for business. The IRS offers a simplified option where you can deduct a set rate per square foot of your home used for business, up to a maximum area. This makes it easier to calculate your deduction without tracking all home office expenses.

6. Office Supplies: Office supplies like stationery, printers, and ink that you use for your business are tax-deductible. To deduct these costs, keep your receipts and make notes about their use in your business activities. Organizing these documents will help you claim the correct amount and provide evidence if required during tax audits.

7. Phone and Internet Expenses: If you use your phone and internet for both business and personal, you can deduct the portion used for business from your taxes. To do this, calculate what percentage of your phone and internet use is for business activities. For instance, if half your data is used for work emails or business calls, you can deduct half your monthly bill as a business expense.

8. Business Interest and Bank Fees: The interest you pay on business loans and the fees for your business bank accounts can be deducted from your taxes. This means if you’ve taken out a loan for business purposes or incur fees from maintaining a business banking account, these costs can reduce your taxable income, lowering what you owe in taxes.

9. Depreciation of office assets such as printers, copiers, furniture, computers, machinery, even business vehicles: Depreciation lets you spread the cost of a big purchase, like equipment or a vehicle, over the years it’s used. Instead of claiming the full cost in one year, you claim a smaller amount each year, reflecting the item’s decreasing value. The IRS has specific rules for how to calculate this based on the item’s expected life. You have Bonus Depreciation and sec 179 expensing that can be used to write off the complete cost of the business asset in the year of its purchase. These depreciations however, cannot be used for real estate.

10. Professional Service Fees: Money spent on professional services like lawyers, accountants, or consultants for your business can be deducted. This means if you hire an expert to help with legal issues, tax preparation, or business advice, the cost is considered a business expense and lowers your taxable income.

11. Salaries and Benefits: Paying your employees’ salaries, wages, and benefits (like health insurance, retirement plans) is fully deductible. This means the money your business spends on compensating workers and providing them benefits reduces your total taxable income.

12. Charitable Contributions: Businesses can deduct donations to qualified charities. However, the exact rules depend on your business structure. For corporations, donations can’t exceed 10% of taxable income, while sole proprietors and other entities report charity on their personal tax returns. Always keep good records of donations for proof.

13. Education: Spending on education that improves your business skills is deductible. This includes courses, workshops, or seminars that relate to your business. The education must enhance skills you use in your business and cannot be for a new career.

14. Child and Dependent Care: You can deduct some expenses for the care of dependents (like children or elderly parents) while you work. This includes daycare, after-school programs, or elder care services. This deduction helps working parents and caregivers reduce taxable income by offsetting care costs.

15. Energy Efficiency Expenses: Energy efficiency expenses offer tax credits for businesses that make improvements to be more eco-friendly. This includes installing solar panels, upgrading to energy-efficient HVAC systems, or adding insulation. These improvements not only reduce your carbon footprint but also can lower energy costs. The government provides these tax credits as an incentive to encourage businesses to invest in green technologies, with the specific credit amount depending on the type of improvement and current tax laws.

As we come to the end of our journey through the 15 biggest tax write-offs for small businesses in 2024, I hope you’ve discovered valuable insights to empower your business and optimize your tax benefits. Remember, understanding and applying these deductions can significantly impact your financial health and contribute to your business’s success.

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