What is Tax Deductible For a Small Business?
September 4th, 2022 | 5 min. read
We all want to find ways to save money. Besides being human, that’s one thing that you have in common with most people in the world.
Many business owners associate tax season with paying a large tax bill from the government - so how can you cut the bill down? One way to reduce what you owe in taxes is to take advantage of all of your tax deductions.
If you’re researching tax deductions yourself, then you’re not getting enough value out of your accountant. You shouldn’t have to reach out with questions and be billed by the minute. If your accountant doesn’t take the time to explain tax strategies to you, then they aren’t implementing tax strategies. Not to mention, an annual tax accountant can’t properly assist with tax planning since they don’t meet with you year-round.
At CSI Accounting & Payroll, we’ve helped small business owners legally minimize their tax liability for more than 50 years. We know what we’re talking about! We also know some of the common questions about tax deductions, such as:
- What are tax deductions?
- What is tax-deductible?
- What is not tax-deductible?
What Are Tax Deductions?
What are tax deductions? We can’t answer that without also explaining why they matter.
Tax deductions reduce the amount of income that you need to pay taxes on. This important aspect of tax strategy helps reduce your tax liability so you will owe less in taxes. Essentially, deductions help you save money.
So, how can you easily tell what is tax-deductible? Here’s how we like to define it: “Anything and everything that is ordinary, reasonable, and necessary to generate income.”
Our favorite examples of things that are tax deductible are the cost of preparing a tax return and the cost of monthly accounting!
What is Tax-Deductible For a Small Business?
Deductions will vary greatly depending on your industry. Industries have many different needs for the following:
- Licensing requirements and education
- Insurance requirements
- … and much more.
Examples of Small Business Tax Deductions
Here are some common examples of tax-deductible items:
- Office supplies (ex. Computers, software, paper, and pens)
- Depreciation (ex. Equipment usage over time)
- Work-related utilities (ex. Internet, telephone)
- Cost of workspace (ex. Renting an office building)
- Work-related travel (ex. Flight tickets, rental cars, and hotels)
- 50% off food and drinks with a client or potential client (ex. A business dinner)
- Work-related car mileage (ex. Traveling from your workplace to a client’s location - not to be confused with commuting, which is non-deductible)
- Continuing education (ex. Attending a seminar)
- Salaries and benefits (ex. The salary of an employee who is not a sole proprietor or a partner or LLC member)
- Business insurance
- Business advertising (ex. Getting a website designed)
- Loan or investment interest
- Professional services (ex. The cost of monthly accounting)
What is Not Tax-Deductible For a Small Business?
There are also two reasons why it’s also important to include examples of what is not tax-deductible: some things are no longer deductible, and some things have different parts that can be deductible or non-deductible.
A good example of something with both deductible and non-deductible aspects is a business loan. There are two aspects of loans to consider: principal and interest. The principal (amount of the loan) is not tax-deductible, but the interest that you paid on the loan is tax-deductible.
Examples of Non-Deductible Items
Here are some items that are not tax-deductible but are commonly mistaken to be:
- Entertainment (ex. Taking clients to baseball games)
- Commuting between your home and your workplace
- Fines or penalties from local, state, or federal government (ex. Penalties from the IRS)
- Personal insurances where the business is not the beneficiary (ex. Disability insurance and life insurance)
- Personal expenses (ex. Doctor’s bills and a home mortgage payment)
- Things that are deemed illegal
- Loan or investment principal
Maximize Your Tax Deductions With a Monthly Accountant
When you make the most out of your deductions, you save more money. You can do exactly that now that you know more about why tax deductions are important and have examples of deductible items and non-deductible items!
If your accountant isn’t taking the time to go through all of the deductible categories listed in this article, then you’re not getting enough value out of the relationship. Working with an accountant is an investment, and this investment should include a minimized tax liability.
Ready to give monthly accounting a shot? Consider working with CSI Accounting & Payroll! Click the button below for a free consultation to see if we can be the right fit for your business.
If you’re not ready to talk with us, that’s okay! To feel more confident in your decision, be sure to click the button below to find out if monthly accounting is the right price point for your business.
Bryan joined CSI Accounting in 2019. He joined the team after CSI purchased his accounting firm, AccountSource LLC, which he had owned since 2005. He graduated from St. Cloud State in 2001 with a Bachelor's Degree in Accounting and has been an Enrolled Agent since 2010. Before owning his own accounting practice, Bryan had worked at the State of MN handling financial reporting and had been in private industry as a Controller. His primary responsibilities include overseeing the accounting department and making sure clients are receiving quality service. Fun Fact: Bryan has played soccer since the age of 4. He still plays soccer year round through various adult leagues and is an avid supporter of the Minnesota United MLS soccer team. COYL!!! (Come on, you Loons!!!)