Do you know which business tax deductions you can and can’t claim? If not, consider this article a starting point. It lists many common expenses along with brief explanations of why they are or aren’t able to be claimed on your business tax return.
Tax Deductions You Can Claim
Business owners are fortunate to be able to write off many expenses as tax deductions to reduce the amount owed on their income taxes. Here are some of the top write-offs:
The cost of business continuation insurance, property insurance, liability coverage and worker’s compensation can be deducted from your tax return. A tax professional should be consulting to determine if the business owner’s health insurance costs are tax-deductible.
Need a new computer? How about an ergonomically correct chair? Any office furniture and supplies like computers, furniture, paper, pens, etc. can be claimed as an expense or capitalized as an asset on your tax return. You can also deduct business postage and shipping costs.
Water, electric, internet, phone and waste disposal bills for your office are fully deductible.
Auto & Travel Expenses
If your company has provided a vehicle for you and that vehicle is titled in the company’s name, you can write off work-related travel expenses including business vehicle auto insurance, fuel and repairs. If your vehicle is titled in your name and you use it frequently for business purposes, be sure to keep a mileage log to get reimbursed from your business. The standard mileage rate for 2021 is 56 cents per mile. Travel expenses such as airfare, hotels, rental cars and meals are also tax-deductible.
Business Interest & Bank Fees
If you borrow money to fund your business, the interest can be deducted. Monthly bank service fees and annual credit card fees can also be written off.
If your business manufactures products or purchases them for resale, you can deduct the cost of your inventory, or the cost of goods sold.
Advertising & Promotions
Business expenses related to advertising and promotions are 100 percent deductible.
You can claim educational expenses that bring value to your business, such as courses, webinars and trade publications.
Salaries & Benefits
If you have employees, their salaries and benefits are tax deductions. Benefits include pension or retirement benefits paid on their behalf and health insurance.
Tax Deductions You Can’t Claim
Certain expenses you incur may seem business-related, but not everything is tax-deductible. Here are some business expenses you can’t claim on your tax return:
Mileage from home to work and back isn’t deductible because it is considered a commonplace activity.
Club dues can’t be claimed — even if you take clients there — because they exist primarily for pleasure.
Similar to club dues, you can’t deduct the cost of entertaining clients at sporting events, concerts, etc.
Political Contributions & Lobbying Expenses
While charitable contributions are tax-deductible, political and lobbying ones are not.
Business Gifts Over $25
You can’t write off any more than $25 for business gifts given directly or indirectly to someone during the tax year. This applies to both employees and customers.
When All Else Fails, Consult a Business Tax Expert
This is not an all-encompassing article. There are additional items you could potentially claim or should not claim on your business tax return. For assurance that you claim every possible deduction and avoid claiming things you shouldn’t, consult with a business tax expert for guidance.
At Kilday, Baxter & Associates, we offer business tax preparation and business tax planning services. We are available year-round to help you and answer your questions. Contact us to speak with one of our experts or schedule an appointment.