In the 21st century, several individuals have become entrepreneurs by establishing independent businesses. There are numerous advantages of being self-employed in the United States. You can choose when to operate the business while regulating your annual income. However, even entrepreneurs aren’t exempt from paying taxes.
Fortunately, business owners are provided some taxation-related benefits but which employees don’t receive. We know that it seems complicated to understand the procedure of paying taxes. But don’t forget which small-business tax deductions you deserve since they can potentially save you thousands of dollars every year. So, let’s discuss the influence and benefits of taxes on a privately-owned business.
Eight ways your business can benefit from taxes
So, what are the benefits of taxation for your business? Unfortunately, the IRS hasn’t issued a list containing everything tax-deductible to American firms. Though they have given one simple “rule of thumb.” It says that anything “ordinary and necessary” for your business operations does qualify as a tax-deductible expense. So, if you need something for your company’s survival, you can write it off on your tax returns. But it would help if you had professional assistance to navigate the intricacies of these matters.
Fortunately, distance learning opportunities are producing many taxation experts these days. The domination of digital education channels has permitted students to enhance their financial expertise and become valuable assets to any business. So, you should hire people who have acquired LLM taxation online since they can advise you on correct deductions. They will help you avoid taxes without evading them.
Moving on, we have compiled a list detailing ways taxation affects your business and how it benefits your trade:
1. Office furniture
You might’ve heard of the mysterious section 179. Many assets used by your organization qualify for deductions thanks to this portion of the IRS tax code. Anything purchased (not leased), tangible (e.g., furniture), and used over 50% by the company qualifies for section 179 deductions. Any equipment bought for the office falls under this section. After further improvements in 2018, section 179 permits new or used pieces of equipment for these deductions. We’ll discuss vehicles later too.
2. Business education
While discussing LLM degrees, it seems correct to discuss deductible education expenditures if they are valuable to your organization. The IRS can overlook these expenses if they maintain/improve any skill or capability of your employees. Some tax-deductible education expenses include seminars, workshops, travel expenses to classes, books tailored to your niche, and subscriptions to magazines. But any education that qualifies workers for another career doesn’t benefit the business here.
3. Lunch meetings
You can deduct 50% of the money spent on food if you’re buying it while working. It includes both take-outs and eat-ins if they’re business-related. It’s alright to order some lunch while you’re having a business meeting. As long as you spend reasonably on food, it’s allowed to subtract 40% of food costs during these business luncheons. But don’t forget that the IRS disapproves of extravagant meals. So, taking your client out to a ball game isn’t something the IRS considers tax-deductible.
4. Home offices
Converting your spare rooms into domestic offices can help you deduct utilities, repairs, and depreciation expenses. In short, you can save $5 for every square foot that goes to a maximum of 300 square feet in your home offices. However, it means that you should keep this room in business utilization regularly. Returning a home office into private lodgings doesn’t fly with the IRS. But that seems like a petty sacrifice to provide huge rent-related taxation benefits to your establishment.
5. Marketing expenses
The IRS does consider marketing & advertising as necessary expenditures for any business venture. So, you’re in luck if you’ve been giving out business cards to potential clients since the IRS allows you to subtract the charges of printing them. From Facebook ads to giant billboards – any strategy used to retain existing customers and acquire new ones is tax-deductible. It appears to be a significant impact of taxes on your business as we’re living in the era of advertisement.
6. Telephone & internet
Your business can even benefit from telephone and internet connections, provided they’re essential for your organization. But there are some restrictions you must remember. Suppose there’s merely a single landline at home. In that case, it isn’t deductible (even if you’re using it for business purposes) unless you’ve got another one. Also, if you’re using an internet connection, the percentage dedicated to commercial endeavors is deductible only. Therefore, remember these details while calculating your taxes.
7. Software solutions
The IRS goes lenient on electronics and other business-related gadgets that have become mainstream in offices today. For instance, your tablets, laptops, smartphones, and other devices used solely for business-related endeavors are tax-deductible. Section 179 also shows leniency towards software solutions bought for commercial purposes. But this computer software must be income-producing, not custom-designed, and expected to be used over a year. Thus, you may write off its price.
8. Office vehicles
Similar to office furniture, vehicles used for business journeys are also tax-deductible. These vehicles include trucks used to transport equipment and even cars driven to/fro business meetings. You have to show that these cars were used for business purposes for deducting these expenditures from your earnings. For instance – according to 2019 mileage rates – driving 5,000 miles for the sake of business would allow you to subtract almost $3,000 on your tax returns. So, keep deducting in 2021.
It’s stressful for companies to survive another taxation season since the idea of giving a portion of your wealth to the government isn’t exciting. However, several taxation-related benefits overlooked by small firms can help reduce the payable amount. That’s why we recommend consulting an expert to understand which benefits your business is eligible for and which activities qualify for deductions. So, remember that Uncle Sam wants small firms to flourish and succeed. Just don’t forget this “golden rule” by the IRS that anything “ordinary and necessary” to running your business constitutes a tax-deductible expenditure.