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Identifying tax deductions for everyday expenses may not be at the forefront of many small business owners’ minds, and that could be hurting your tax return. You may be paying more taxes than you should be, or you may find that your tax return could be higher if wrote off applicable expenses. There are some easy ways you can tailor your small business accounting process to deduct expenses. For example, if you have dedicated a room in your home as an office space, you can claim a tax credit of up to $1,500. Identifying deductions is a big part of a business’s financial success and really pays off in the long run. In this post, our Raleigh accountants will discuss ways you can identify tax deductions and provide the ultimate small business expense list to help your small business succeed in 2023.
What are Small Business Expenses?
Small business expenses are similar to personal expenses you incur at the grocery store, gas station, restaurants, etc. Simply put, business expenses are costs incurred from conducting business. Business expenses can be classified as any expense that is necessary to your business’s daily operations. Moreso, any of these expenses can be tax deductible which makes it well worth the effort to write off legitimate expenses.
What Qualifies as a Tax Deductible Business Expense?
In order for a business expense to qualify as “tax deductible,” the expense must be necessary for business purposes, business-related, and the expense must be incurred with the goal in mind of gaining a profit. For example, if you own a local donut shop, the equipment you use to make and fry the dough was bought for business purposes and is intended to gain a profit when you sell donuts to customers.
One important fact to bear in mind is that some expenses, such as the cost of a machine, cannot be deducted in the same year that the expense was incurred. This is one reason why financial advisors will suggest you separate your larger expenses, such as capital expenses, from the costs of goods. Using the example above, the equipment you use the fry the dough is a capital expense whereas the flour purchased to make the dough is a cost of goods expense. Utilizing bookkeeping services is one highly recommended way to keep expenses separate so it’s easy to identify and categorize such expenses when tax season rolls around.
20 Examples of Tax Deductible Small Business Expenses
Examples of small business expenses that may be tax deductible include:
- Financial and legal expenses, including the cost a CPA charges to maintain your small business’s bookkeeping and financial statements.
- General office expenses, such as the cost of paper, print ink, pens, and other office supplies.
- The cost of training courses for employees, including online courses and in-person seminars that have an associated fee.
- Employee benefits, including healthcare, dental care, and vision care expenses.
- The cost to protect intellectual property, which includes the protection you use to keep software secure as well as employees safe (i.e. alarm systems).
- Business insurance, including insurance to protect your business against malpractice. Business insurance is especially helpful for law firms, healthcare providers, private practices, and real estate brokers.
- Utility fees, including the cost of your electric bill, trash disposal, and internet fees.
- Rent expenses, mortgage costs, and/or mortgage interest.
- Business-related travel expenses, such as a work conference as well as meals you eat on your business trip.
- Employee compensation, including general wages and bonuses, are tax-deductible small business expenses.
- Depreciation, such as the depreciation cost of the equipment you use to conduct business for a profit.
- Initial costs incurred to start a business are eligible for up to $5,000 in tax deductions.
- Software that contributes to the upkeep and maintenance of your small business, such as bookkeeping software.
- Donations to qualifying charity organizations.
- Medical expenses for small business owners, such as primary care doctor visits, the cost of prescription medication, and other necessary medical costs.
- Contributions made to a retirement account, such as a 401(k), a Roth, or an IRA.
- Gifts for employees, such as holiday gift expenses.
- Manufacturing costs, including the cost to produce a final product, the cost of goods, and even the cost you incur to store goods.
- Maintenance and repairs for items that are essential to the operation of the business. This includes repairs on company vehicles, gas expenses, and the repair of machines or equipment that is essential to the well-being of the business.
- Interest fees incurred on rent, business loans, and business credit cards are considered tax-deductible expenses for small business owners.
When deciding which small business expenses are tax deductible come tax filing season, it’s best to consult with a local Raleigh accountant with experience in small business tax deductions. Experienced CPAs can identify tax deductions and itemize expenses so your small business can stay out of hot water with the IRS and avoid an audit.
How Can I Simplify My Small Business Expense List?
One of the best things you can do for your business is to categorize expenses and track expenses as you incur them. Once you identify the expense categories you use the most often, you can generate a financial statement that will break down your expenses into the appropriate category. Now that you have your small business expense list in order, it's time to identify which expenses are considered tax-deductible.
Once you have assigned expenses to the correct category, you can pinpoint tax-deductible expenses. If you’re not sure if a particular expense is tax deductible or not, it’s best to consult with a trusted CPA who can review your expenses and determine which ones are tax deductible.
Contact a Small Business CPA for Tax Assistance
Working with a CPA for your tax preparation needs is one of the most beneficial things you can do for yourself when it comes to determining what is or is not considered a tax-deductible expense.
The C.E. Thorn, CPA, PLLC, is comprised of Raleigh accountants who are available to help you with all your tax planning needs. Give our Raleigh accounting firm today at 919-420-0092, or get started by filling out the contact form below. We look forward to speaking with you.
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