As a small business owner myself, I can tell you from experience that tax season can put a lot of pressure and stress on anyone, but for us small business owners, this time of the year can be not only a stressful time but also very costly. But don’t worry, the IRS has set up a formula for deductions to help us small business owners with our business expenses. The IRS formula for deductions of business expenses is quite easy to follow actually. The IRS formula is setup so that the more tax deductions that your business can legally take advantage of, the lower the taxable income for your business. With that in mind, I have highlighted two important small business tax deductions that can help as you maximize your business operation while reducing your tax liability.
Two Important Small Business Tax Deductions
Auto Expense Deduction
One of the major deductions that small business owners should take advantage of is the auto expense deduction. If you have a vehicle that is utilized for your business then you can write off some of the expenses of using that vehicle. There are two methods to choose from when using the auto expense deduction. The two methods are the standard mileage rate method and the actual expense method. In the standard mileage rate method small business owners can use the IRS’s standard mileage rate deduction to reduce their taxable income. The standard mileage rate method allows the business to deduct a fixed amount for each business mile driven. For 2014 the IRS has set the mileage rate deduction at fifty-six cents per business mile driven.
This deduction really helps out if your business, like mine, has a lot of new vehicles. New vehicles tend not to break down, thus don’t have much actual expense to be deducted. On the flip side if your business is mostly older vehicles that have had a lot of repairs, you might want to use the actual expense method to maximize your deductions.
Travel Expense Deduction
Another important small business deduction that small business owners should take advantage of is the IRS’s travel deductions. Whenever you take a business trip you can really add up some major deductions to help reduce your business’ taxable income. On your business trip you can write off things like the cost of the airfare, that big hotel bill, the rental car that you took to the meeting, that fancy business dinner and tip and those phone calls back home to family members.
This type of deduction is beneficial to small businesses that travel out of town quite often. These travel cost can add up quickly and be very expensive. The IRS tax deduction for business travel is meant to help facilitate your business not handicap it to one geographical area.
These two important tax deductions for small businesses are step up by the IRS to allow the business environment to expand and flourish. As a business owner if you take advantage of these tax deductions; not only will you put more money into your pocket every year, you will put more money into your business every year.