A Beginner’s Guide to Small Business Tax Deductions- Every being or resident of the United States of America has some familiarity with federal and state taxes whether on an individual level or as a business owner. The mission of the Internal Revenue Service is to “provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities. And also help them by applying the tax law with integrity and fairness to all.” This is why we must file taxes annually on our income each year.
If you think about it, taxes are a bit of a beautiful symbiotic relationship as one taxpayer’s expense is another’s income: Payroll, for example, is an expense to a business and income to an individual.
While individuals are limited to a narrow number of types of expenses they can deduct (general home ownership, charitable contributions, and certain medical expenses), deductions for business expenses are actually even more liberal (but must be purely related to the business—no mixing business and personal!)
Which brings us to tax deductions
Tax-deductible business expenses offer A great way offered by Tax-deductible for businesses to reduce their tax liability, especially for early-stage companies that are in spending mode as a way to aggressively scale each year. Accrual or Cash: A tax strategy is so key to consider when choosing your business’s accounting method. Taxpayers have liability to determine the timing of their income and expense for each calendar year while accrual basis taxpayers may have the ability to accelerate expense and defer their income.
Sidenote: while selecting your business’s accounting method, this is just part of what you should consider.
What are small business expenses deductible?
Whether common or not so common, accepted in your trade or business, Tax law requires business expenses to be ordinary to be deductible and necessary (helpful and appropriate for your trade or business). They also emphasize how important it is to keep the expenses you deduct as a business separate from your personal expenses (as a business owner), capital expenses, and any expenses that go toward the goods you sell (your cost of goods sold).
What you need in order to take tax deductions
If you’re ever faced with an IRS audit you will need to provide evidence that expenses are deductible. Here’s what will help:
- A bookkeeping system
Every business owner should go for bookkeeping services, but tracking your income and expenses also makes tax preparation and filing simple and complying with the IRS requirements quickly and easy. Your tax accountant or CPA will need an up-to-date balance sheet at the time of time of tax filing and an income statement as well as your capital-asset activities for the year (buying, selling, or disposing of capital assets that year).
Out of the many accounting solutions out there, the best ones (including Impanix) give you concrete data to make the best decisions on your taxes.
- Receipts and records documenting expenses
Record keeping is key as you can store and categorize these digitally or are still using the old shoebox method, your CPA will thank you for maintaining detailed context for the tax deductions you claim. Make this easy on yourself and spare yourself the clutter! Choose a bookkeeping software or solution that also allows you to upload and store your receipts.
- Certain expenses require specific records
Sometimes a receipt is not enough is one Example- Deducting the use of a personal car for business purposes where you will need more information to back up your tax deductions. It’s best for you and your employees to track your mileage based on business vs. personal in a log.
Don’t be unsure about 2017 tax deadline which expenses you can deduct, well-organized bookkeeping will be your best friend. Not only will it make it easy for your to reference data if you file on your own. Having ready access to detailed records will also make it easy to solicit help from a tax professional or CPA who will need to understand your business and it’s year-long activities.