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The Ultimate Guide to Small Business Tax Deductions for Maximum Savings

Updated: May 9

Author: Beste S

Publication date: 24.08.2023

As a small business owner, maximizing tax deductions can increase profits and save money. To ease year-end filing stress, take advantage of business deductions and expenses. Getting to know assets and liabilities can reduce the amount owed to the government. Here are the top 10 common deductions for freelancers to save money and simplify the process.

1) Office Supplies

Small business owners and freelancers can deduct office supplies and equipment from taxes, including computers, printers, and plants. Keep receipts and records to prove expenses and consider including items like staplers, paper clips, shipping expenses, courier costs, and cleaning supplies. These deductions can lead to significant savings.

2) Use of your Car for tax deductions

If you use your car for business purposes, you have two options for claiming your vehicle expenses:

The mileage method and

● The actual vehicle expenses method.

The first method tracks your business and personal mileage to claim a mileage deduction on your taxes for the business use percentage of your vehicle. The latter enables you to include costs like the price of your car (even if it was financed), insurance, registration, gas, repairs, and maintenance.

To qualify for this deduction, all you need to do is keep track of your personal and business mileage to determine the percentage of your business use. No matter what kind of business you run, trips to the post office and client meetings may be eligible for deductible driving expenses.

3) Insurance

Insurance premiums, such as liability, health, property, worker's compensation, and more, can be deducted from taxes by small business owners, entrepreneurs, and freelancers. These deductions can save you money and support business growth. Many insurance premiums are tax-deductible, including losses, credit, group medical, liability, malpractice, workers’ compensation, and automobiles.

common tax deductions

4) Home Office

Freelancers are entitled to claim home office expenses as they use their residence as both living space and workspace. You can deduct home office expenses using two methods:

● the simplified method (up to $1,500) or

● deducting specific expenses like rent, interest, tax, insurance, and utilities.

To qualify for the latter, your home office must be your primary workspace and used solely for work.

5) Advertising Expenses

If you have invested money in advertising for your business, you can claim deductions for those expenses when filing your taxes. Such expenses may include promotional items, billboards, business cards, website hosting, and online advertising.

6) Employee Wages and Benefits

Businesses are entitled to deduct wages, bonuses, and non-cash compensation. However, this happens as long as they are considered ordinary and necessary expenses for the services provided. These payments must be reasonable and paid by the business itself.

It is important to note that deductible payments include sick pay, vacation pay (in the year received), and employee benefit programs that meet certain conditions. Furthermore, training and education expenses for employees are also deductible as long as they meet specific requirements.

7) Travel Expenses

As a small-business owner or employee, traveling for work can be expensive. But you can deduct most travel expenses if the trip is for a legitimate business purpose. Keep receipts and detailed records to claim these deductions during tax season. Options include rental cars, taxis, airfare, accommodations, dinner with clients, and even small expenses like dry cleaning. Establish a system for organizing your travel receipts at the beginning of each year to simplify the process.

common tax deductions

8) Legal and Professional Fees

As a business owner, you can deduct professional fees paid to lawyers, accountants, and other consultants as business expenses. It's important to invest in these services as they can bring tax savings. Make sure the fees are directly related to your business, not personal expenses. Small businesses can write off fees related to:

● tax issues,

● tax form preparation,

● rental or royalty income,

● whistleblower claims, and

● unlawful discrimination claims.

9) Bad Debts

Bad debt is when a customer or business fails to pay, and you can't collect it. Also, it's deductible as a business expense if you use the accrual accounting method. This only applies to business debt, not personal. Common for small businesses, bad debts are liabilities you can't collect. So, you can claim bad debts on loans, unpaid purchases, and services sold.

10) Rent and utilities for tax deductions

As a freelancer or entrepreneur, you can take advantage of tax deductions for business rent and utilities. You can also deduct rent or lease payments for business space and vehicles. Augusta Rule says that Businesses can rent a personal residence for up to 14 days per year for business events or meetings. To ensure you're maximizing your deductions, consult with a tax strategist and keep accurate records of all payments and expenses.


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