Due to the unexpected financial losses small businesses faced in 2020, getting the most from your tax return will be of high importance this tax season. This is where tax deductions come in to save the day! Tax deductions help decrease your taxable income, therefore reducing the amount of tax you end up owing.
With the shift to work from home last year becoming the norm, your home most likely became your new office workspace. According to the IRS, the square footage of your home that is used for business purposes can be tax-deductible ($5 per square foot). You’re also able to deduct any other home office purchases like supplies, technology, etc. You will need proof of these purchases with receipts for each expense.
If your business made cash donations to a charity last year, you might be able to deduct that donation amount as a business expense. Keep in mind sole proprietorships, LLCs, and partnerships cannot deduct these contributions.
You can deduct your business insurance premiums, which include liability coverage, auto insurance, property coverage, life insurance, and more.
If contractors and freelancers are part of your team, you can deduct their fees as a business expense. Keep in mind, if they earn more than $600 a year from your business, you will need to send them form 1099-NEC by January 31st of the next year.
Salaries, Benefits, and Vacation Expenses:
When it comes to employee salaries, benefits, and vacation time you can deduct them on your business tax return. As long as the employee is not an owner of the business in any way, the salary is reasonable, and the services were indeed provided, a tax deduction is possible.
This includes any skill improvement, employee training, and educational classes related to your business. As long as you can prove the education is relevant to your business, then you can deduct these educational costs on your tax return.
Rented Business Office:
If you pay rent for your business property and don’t receive any equity from it then you are eligible to deduct this cost as a business expense under IRS Publication 535. This can also apply to business equipment that you rent as well.
Keep in mind these are just some of the tax deductions available for small businesses. The best way to get the most out of your tax return is to do your research and keep tax deductions top of mind during the business tax preparation process. Be sure to have proof to back up your deductions properly in accordance with IRS guidelines.
Whether you’re a small business or just looking to learn more about filing your taxes properly, we’re here to help with your tax planning and filing. Feel free to contact us at 410-224-2600 and don’t forget we’re also offering virtual appointments. Book yours today!