Small Business Tax Deductions


As a small business owner, you do everything you can do remain profitable. You carefully watch expenses, you work long hours, and you strive for efficiency.

One of the expenses you can’t avoid as a small business owner is taxes. If your business makes money, you’re going to owe taxes. Fortunately, there are plenty of small business tax deductions available that help.

Here are some of the most overlooked small business tax deductions, and what you can do to take advantage of them:

1.Child labor.

Of course, we’re not talking about sweatshop conditions for poor inner-city children here. We’re talking about putting your own family to work in your small business.

Depending on the amount that you pay your children to work for you in your business, your children might be able to avoid paying any income taxes at all. Not only that, when you hire a child of yours that is 17 years old or younger, you don’t have to pay Social Security taxes. You can then, in turn, deduct the child’s salary as small business tax deductions.

Keep in mind here that small business tax deductions only work if you’re a sole proprietorship, or if you have a partnership where only you and your spouse are the partners. If you have a corporation, you’re not the employer, and the corporation doesn’t get small business tax deductions.

Take it a step farther and have your child contribute some of his or her paycheck to a Roth IRA. This will not only give you the small business tax deduction, it will teach your child to set aside some money, and you’ll be helping them plan for the future.

2.Insurance premiums.

If you’re self-employed, paying for health insurance can be a struggle. With new changes to the health care landscape, many self-employed individuals are worried about how this will all work.

The good news is that the cost of your health insurance premiums are 100% deductible from your taxes.

There are some rules to this, however. The amount of the deduction can’t be more than the net profit of your business. In addition, if you’re eligible for a different health insurance package – such as through a spouse’s employer – you cannot take these small business tax deductions.

In addition to health insurance, long-term care insurance for both you and your spouse, as well as your children, is partially deductible.

3.Software and magazine subscriptions

Magazine subscriptions – provided that those magazines are related to your small business – have been deductible for a long time. Recently, however, Section 179 of the tax code has provided other tax deductions for small businesses.

It used to be that software purchases had to be depreciated over a period of three years. Thanks to these rules changes, however, any software that you buy off the shelf can be expensed during the year in which you actually make the purchase.

4.Travel and entertainment expenses

The rules for travel and entertainment have changed significantly in the past couple of decades, so much so that it can be confusing as to whether or not a given expense is deductible and at what rate.

The fact of the matter is that most travel expenses are deductible at a 50% rate. That’s not a hard and fast rule, as some expenses aren’t at all deductible while others may be. It’s important to talk to your tax expert about given expenses so you can be sure whether or not they should be claimed.

5.Advertising and gifts.

Advertising and giving gifts to clients or employees are important parts of promoting your business. As such, some of these expense are deductible. Keep in mind that client gifts can only be qualified as a small business tax deduction up to $25 per gift. Advertising expenses can be fully deducted; the key thing to keep in mind here is that if you have a multi-year advertising campaign or contract, the costs have to be spread out over the covered years.

Getting the most out of your tax situation for your small business means getting the right tax deductions. It’s not always easy to know what is and isn’t deductible. That’s why it’s so important that you get solid tax advice each year from your tax professional. She’ll help you keep more of the money you make, which in turn can help you grow your business.

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