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Take advantage of tax deductions for small business owners

We know, we know, it’s still this year. But it’s time to start thinking about what you’ll need to have ready for your accountant when it’s time to do your business tax return in January next year.

As a business owner, you’ll want to be sure you take advantage of any applicable tax deductions that can reduce your tax liability (and by extension, increase your tax savings!). If you’re not quite certain what can be considered a tax deduction, here’s a quick primer on deductions that can apply to small business owners.

Common deductions

Taxes—Yes, taxes can be tax deductible! Federal, state, sales and real estate business taxes are deductible. You can also deduct state unemployment taxes, FICA and FUTA.

Insurance—You may grumble paying all those business insurance costs, but they can pay you back come tax time. Your health insurance, auto insurance, business interruption and continuation insurance, workers’ compensation and general liability insurance are just a few of the expenses that are considered tax deductible.

Depreciation—Don’t forget that the depreciation on equipment, furniture and other business assets can be used as a tax deduction. There are several methods you can use, so talk to your accountant to find out what will work best for you.

Rental and lease costs—Rental payments on your business space are tax deductible. So are the lease costs for business equipment (i.e., machinery, copiers). Note that if you run your business from a home office, that’s a different situation. Again, your accountant can help you figure out what deductions go with which tax return (business or personal).

Employee pay and benefits—You can deduct the annual salaries and hourly wages that you pay to your employees—as long as each person is a verified, documented employee of your business (this doesn’t apply to sole proprietorships or partnerships, however). You can also deduct some benefits, including qualified retirement plan accounts, childcare allowance and education assistance. Check with your accountant for details.

Contractor pay—If you employ freelancers or independent contractors, the cost of their services is tax deductible. To be eligible for that deduction, you’ll need to issue them a form MISC-1099 or 1099-K for payments of more than $600.

Other possible deductions

While we won’t go into detail in this section because the following deductions can be more complex—conditions for deductibility, documentation requirements, etc.—this list may help spark more questions for (say it with us) your accountant. Those deductions include:

  • Interest expense (business credit cards, small business loan, business line of credit, real estate loans)

  • Bad debts (unpaid invoices, employee loans, notes receivable)

  • Startup and organizational costs

  • Research and development (R&D) tax credits

  • Marketing and advertising expenses

  • Retirement plan contributions

As a small business owner, the key to maximizing your tax savings is to stay organized throughout the year…every year. When you have accurate records of your income and expenses, understand which forms you need to file, and know which deductions you may qualify for, tax time becomes not only less intimidating, but it could become more financially satisfying, as well.

Just ask your accountant. :-)