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Micky Gramlin   My Press Releases

Top 20 Tax Deductions for Small Business by Barbara Weltman

Published on 5/26/2019
For additional information  Click Here

 

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Top 20 Tax Deductions for Small Business

Published

smallbiztrends.com

by Barbara Weltman

 

Tax time has passed but we are approaching the half way mark already for 2019. Some of you may want to review and make sure you are taking full advantage of your home office deductions. Proper recoreds must be kept in case of an audit.

With the explosion of home businesses expected, an audit from the IRS is more than likely going to grow as well and no matter how well you keep records, an audit is stress in capital letters. Today I have listed 10  and will follow up with the rest of the 20 on the next post. Micky G

 

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Deductible business expenses help entrepreneurs with many of the costs of running a company. Business owners know that most expenditures can be written off, although there may be limits and timing issues. So what are the most common tax deductions for small business?

Last fall the IRS released data on sole proprietorship returns. The same types of deductions can be claimed by other entities — C corporations, S corporations, partnerships, and limited liability companies (LLCs) (although there may be slightly different rules for some deductions).

See which ones apply to your 2018 tax return and think about which may impact your 2019 tax year for purposes of estimating taxes and business planning.

Here is a roundup of the most common tax deductions that were claimed on Schedule C of Form 1040 by sole proprietors (including independent contractors and one-member limited liability companies not reporting elsewhere) as determined by the dollar amounts, starting with the largest category.

Top Tax Deductions for Small Business

1. Car and truck expenses. Most small businesses use a vehicle, such as a car, light truck or van. The cost of operating the vehicle for business is deductible only if there are required records to prove business usage. In deducting costs, the need to keep records of cost (e.g., gasoline, oil changes) is eliminated if you rely on the IRS standard mileage rate of 54.5 cents per mile in 2018 (58 cents per mile in 2019) instead of deducting your actual outlays. You can use the standard mileage rate whether you own or lease the vehicle.

2. Salaries and wages. Payments to employees, including salaries, wages, bonuses, commissions, and taxable fringe benefits, are deductible business expenses for the business. (For employee benefit programs, such as retirement plan contributions, see item #19.) Of course, payments to sole proprietors, partners, and LLC members are not wages (i.e., they are not deductible business expenses) because these owners aren’t employees.

3. Contract labor. Many small businesses use freelancers or independent contractors to meet their labor needs. The cost of such contract labor is deductible. Be sure to issue Form 1099-MISC to any such contractor receiving $600 or more from you in the year (if payment is made to the contractor via credit card or PayPal, it’s up to the processor to issue them Form 1099-K, but you may want to send your own 1099-MISC for personal protection).

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4. Supplies. The cost of items used in a business (e.g., cleaning supplies for a cleaning service) as well as postage are fully deductible business expenses. Also, if you opt to use a de minimis safe harbor allowing you to deduct the cost of tangible property (e.g., tablets, vacuum cleaners) rather than depreciating the, the items are treated as non-incidental materials and supplies. They are deductible business expenses when purchased or furnished to customers, whichever is later.

5. Depreciation. This deduction is an allowance for the cost of buying property for your business. It includes the Section 179 deduction for equipment purchases up to a dollar limit ($1,000,000 million in 2018; $1,020,000 in 2019). Certain other limits also apply. The depreciation category also includes a bonus depreciation allowance, which is another type of write-off in the year costs are paid or incurred. The limit is 100% for property acquired and placed in service after September 27, 2017.

6. Rent on business property. The cost of renting space — an office, boutique, storefront, factory, or other type of facility — is fully deductible.

7. Utilities. Electricity for your facility is fully deductible. Other utility costs include your mobile phone charges. If you claim a home office deduction and have a landline, the cost of the first landline to your home is not deductible. If you have a second line, it is a deductible utility cost.

8. Taxes. You can deduct licenses, regulatory fees and taxes on real estate and personal property. Your employer taxes, including the employer share of FICA, FUTA, and state unemployment taxes, are fully deductible business expenses.

However, for self-employed business owners, the deduction for half of your self-employment tax is not a business deduction; it is an adjustment to gross income on your personal income tax return. And owners of pass-through entities cannot treat their state and local income taxes on business income as a business write-off.

These are personal taxes deductible only on Schedule A of Form 1040 (and for 2018 through 2025, are subject to a $10,000 cap for all state and local taxes).

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9. Insurance. The costs of your business owner’s policy, malpractice coverage, flood insurance, cyber liability coverage, and business continuation insurance are all fully deductible. However, there are two rules to note for health coverage.

A small business may qualify to claim a tax credit for up to 50% of the premiums paid for employees (a better tax break than a deduction). Also the cost of health coverage for self-employed individuals and more-than-2% S corporation shareholders is not a business deduction. Instead, the premiums are deducted on the owner’s personal tax return.

10. Repairs. The cost of ordinary repairs and maintenance are fully deductible, while costs that add to the property’s value are usually capitalized and recovered through depreciation. However, there are various safe harbor rules that allow for an immediate deduction in any event.

 

Thank you for stopping by!

Micky Gramlin

mickygramlin@codeblueforbusiness.ws

 

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Barbara Weltman  Barbara Weltman is the Tax Columnist for Small Business Trends. She is an attorney and author of J.K. Lasser’s Small Business Taxes and The Complete Idiot’s Guide to Starting a Home-Based Business. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and is a trusted professional advocate for small businesses and entrepreneurs.

 

 

 

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