Whether you are a sole proprietor, a partnership or a small corporation, using these IRS’ deductions for businesses will work to reduce your business’ net income, lowering your tax bill.
There’s a word of advice that says, “pay yourself first” and the best way to do that, besides taking a paycheck, is to make a contribution to your retirement account. There are a variety of retirement accounts available from an IRA to a 401K and making the largest possible contribution for the year will reduce your tax obligation.
Health Insurance Premiums
The monthly premiums you pay are deductible. With the cost of health insurance continuing to increase this deduction amounts to a sizeable amount whether you are a sole proprietor or have a business with employees.
Auto for Business Use
Take a look at your annual expenses related to operating your auto in the course of doing business. Lease and auto loan payments, gas, repairs, tires, tolls, parking and even car washes qualify as deductions. Also, as an alternative, you can keep it simple and just use the standard mileage rate as set by the IRS for the current tax year.
Cost of Goods Sold
Whether you manufacture a product for sale or purchase products for resale, the costs involved are deductible. These costs include the raw materials needed, the cost of a product for resale, storage costs and labor and any overhead costs. Reducing your gross sales amount by adding up all the costs involved in selling or producing products result in a lower net income and a reduced tax bill.
The space you use for running your business at home is also deductible. It is based on the percentage of the space used for business and a part of your home’s utilities cost can also be included.
Hotel rooms, rental cars, air travel, taxis, meals and much more qualify as deductible expenses. Check out the IRS publication, number 463, for complete coverage of travel, entertainment, gift and car expenses.
All those paper clips and paper you use plus all the other supplies like ink cartridges that you bought for your office are deductible. Also, don’t forget to deduct copying costs and postage. A full year’s purchases add up to a sizeable deduction.
Keeping great records of your business expenses, getting an annual summary from your credit card company by expense category and keeping every receipt adds up to a substantial deduction that will reduce your taxes.
Sources: IRS Publication 463, Travel, Entertainment, Gift and Car Expenses. IRS Publication 535, Business Expenses.