As a business owner, you wear a lot of hats. Business development, operations manager, HR director and many more. With all of the hard work that you put into growing a healthy company, I’m sure one of your goals is to earn as much profit as possible.
Just one little problem…when you earn a profit, a fun tax bill comes right along side it.
Good news is, there are a lot of tax deductions that you can take advantage of as a business owner to help lessen your tax burden. Check out this list of 10 tax write-offs for entrepreneurs!
HOME OFFICE DEDUCTION
If you use part of your home regularly and exclusively for your business, you can claim this deduction. Check out this post for more details How to Deduct Your Home Office
HEALTH INSURANCE PREMIUMS
As a self-employed person, you can deduct the cost of your health insurance premiums as long as you meet certain requirements. First, your business must claim a profit. Second, you and your spouse can’t be eligible to enroll in another employer’s health plan.
MEAL EXPENSES
You can deduct meal expenses during business travel or if you dine with a business contact or team member. You can deduct up to 50% of the meal expenses if the food or beverages are not considered “lavish or extravagant”. The meeting must also include business either before, during or after the meal.
BUSINESS GIFTS
Gifts for clients and business associates can be deducted as a business expense. However, there is a catch: You can only deduct $25 annually given directly or indirectly to any one person. Promotional items and shipping and engraving costs don’t count toward the $25 limit.
BUSINESS TRAVEL
If you travel out of town for business, the cost of getting to and from your destination and any business expenses can be deductible. This includes transportation costs, hotels, meals, conference tickets, etc.
DEPRECIATION
Business owners can fully write-off the entire cost of new purchases such as computers, furniture and equipment, in lieu of depreciating the cost of the asset over a number of years. This includes new and used property. Simply put, you get to write-off the cost of your new equipment in the year of the purchase instead of spreading that expense over 5 to 7 years. This is a HUGE win for business owners!
START-UP COSTS
The IRS wants to encourage people to open a new business by allowing a write-off of up to $5,000 for start-up expenses. Start-up costs include amounts paid either to create a trade or business or to investigate the creation or acquisition of a trade or business. Some examples include: advertisements for the opening of the business, and travel and other necessary costs for securing prospective distributors, suppliers or customers. Once the company begins operations, all business expenses are deductible.
RESEARCH & DEVELOPMENT
To qualify for this credit, a business must incur expenses for the purpose of discovering information that is (1) technological in nature and (2) for the development of a new or improved business component. It’s important to discuss with your CPA to ensure that it qualifies.
RETIREMENT PLAN CONTRIBUTIONS
There are several retirement plans available to small businesses that allow tax advantageous ways to save for retirement. Contributions made by the owner for themselves and for employees can be deducted. Here are a few options:
- Solo 401(K)
- SEP IRAs
There are a lot of rules and contribution limits with each plan, so be sure to ask your financial planner before deciding on a plan.
QUALIFIED BUSINESS INCOME DEDUCTION
In 2018, a 20% deduction on business income for small business owners was implemented. You may qualify for this as a freelancer, sole proprietor, LLC, partnership and S Corporation. This was a huge win for entrepreneurs because it generally means that for $100,000 of net income, $20,000 is tax free!
There can be a lot of complexity around this deduction, so be sure to work with your CPA to maximize this for your business.
