When you're running a small business, every dollar counts. It's always a good idea to pay close attention to the deductions you can take on your tax return. As a small business owner, you can deduct a variety of expenses from your taxes.
Here are some of the most commonly-claimed tax write-offs for small businesses so you know what's available to you when it comes time to file.
What is a tax write-off?
A tax write-off is a tax deduction that reduces the amount of income you have to pay tax on.
Tax deductions help keep your business costs low, which can help you save money and make more profit. Tax write-offs can be used by all businesses, but they're especially helpful for small businesses because they provide big savings compared with other types of business expenses.
How do tax write-offs work?
In order to qualify for tax write-offs:
- An expense must be directly related to your business (you can't claim a personal expense).
- The portion of the expense that is directly related to your business must exceed 2% of your net earnings from the business (if it doesn't, then you can't claim it on your taxes).
Club Capital provides monthly accounting, tax, and CFO services for insurance agency owners. With 100% of our clients in the insurance industry, we are built to help you grow your agency faster with industry-specific accounting, tax, and CFO services.
11 Common Tax Deductions for Your Small Business
1. Car Expenses
You can deduct the following costs related to your car:
- Gas, oil and repairs.
You can deduct expenses for gas, oil and other supplies used in operating (or keeping ready for use) your vehicle. If you add equipment or accessories to your car that are not included in its base price, those costs are also deductible.
- Parking fees and tolls.
You can deduct parking fees if they relate directly to business activity (for example, when you need to park at a client's office). Tolls paid on business trips are also deductible as long as there's an underlying business purpose for them. You cannot deduct tolls paid solely for commuting or other personal travel.
2. Supplies and Equipment
Supplies and equipment are the costs related to keeping your business running. Supplies may be short-term expenses that you only have to pay once.
Supplies may include:
- Toner for the printer
- Stamps and other office supplies.
Equipment is typically something that lasts longer than one year but less than five years before being replaced.
Equipment expenses can include:
- Filing cabinets
3. Home Office Expenses
If you use part of your home for business purposes you might be able to deduct expenses related to that space on your tax return.
Home office expenses often include:
- A portion of your rent or mortgage payment,
- A portion of your utilities,
- Costs related to maintaining the property or purchasing supplies for it.
There are certain requirements that must be met if you want to claim deductions on this type of expense:
- There must be some evidence supporting use as an office.
- The space must have been used regularly and exclusively for work-related activities during normal business hours (usually defined as between 9am-5pm).
4. Employee Expenses
If you pay a salary to an employee, you can deduct the cost of benefits.
- Health insurance premiums
- Dental plans
- Vision plans and
- Life insurance coverage for your employees.
You can also deduct the cost of training and education for your employees as well as travel expenses for business trips or conferences that are required by the job.
5. Insurance Expenses
Insurance premiums are a tax deduction that you can take on your business. But there are several different kinds of insurance, and only certain types are tax deductible.
- Business interruption insurance
- Loss of business income insurance
- Property insurance
- Liability insurance
6. Interest and Bank Charges
There are a number of different types of interest that you may be able to deduct. You can claim the following:
- Interest paid on a business loan
- Interest paid on a personal loan used for business purposes
- Bank fees and charges, such as monthly account maintenance fees and ATM charges (but not overdrafts).
Credit card payments are also treated in the same way as bank loans and charges—if they're used to make purchases or pay other expenses related to your business, they're eligible deductions.
7. Legal and Professional Services
The IRS allows you to deduct legal and professional services you paid for.
- Accounting fees
- Consulting fees
- Lawyer's fees
Club Capital expenses fall under tax deductible legal and professional services. Club Capital helps insurance agents better manage their agency's finances through best-in-class monthly accounting and tax services.
8. Travel Expenses
Travel expenses are tax deductible if you have a business purpose.
Tax deductible travel includes:
- Business meetings
9. Marketing and Advertising Expenses
When it comes to marketing, advertising and entertainment costs, you can deduct these costs if they are business-related.
These costs include:
- Advertising to attract customers for your goods or services.
- Marketing that promotes your products or services to the general public.
- Sponsoring trade shows, conventions and seminars for industry professionals.
10. Meals and Entertainment Expenses
If you run a business that has meals and entertainment as part of its operation, you can deduct 50% of the cost of these expenses.
The thing to remember is that in order for an expense to count as a meal or entertainment expense, it must directly relate to your business.
11. Taxes and Licenses
In addition to the numerous other types of business expenses you may claim as deductions, you can also deduct taxes and licenses.
- Real estate tax on your home office or business premises (if you rent a space)
- Licenses and permits from state, county, and city governments
- Fines levied by any government agency for violations related to your business
We hope this article has helped you understand the different types of tax write offs available to small businesses. If you’re still unsure about what type of deduction is right for your business, don’t hesitate to reach out! We have a team of tax experts who can help figure out what works best for your business.
Club Capital Is Here To Help
For the past 5 years, Club Capital has helped insurance agents better manage their agency's finances through best-in-class monthly accounting, CFO, and tax services. Schedule a demo today!