The average tax rate for small businesses in the United States is 19.8%.
Now, that figure does vary depending on how your business is set up. For instance, sole proprietors will fork out a cool 13.3% each year. Small partnerships, on the other hand, are generally hit with a 23.6% tax rate.
On average though, almost one-fifth of your business’ income is siphoned off to the IRS each year. Wouldn’t it be nice to claw some of that money back from your annual tax bill?
Thankfully, it’s absolutely possible.
In fact, there are a whole host of small business tax deductions available to you. But they’re no good if you don’t know what they are! We wanted to help.
Keep reading to discover 9 tax deductions that can save you money on your tax return this year.
What is a Tax Deduction?
First, let’s briefly cover what we mean by a tax deduction.
Essentially, tax deductions refer to any money that can be taken away from your total taxable income each year.
Let’s say you spend x amount of money on a tax-deductible item. At the end of the year you could legally subtract that sum from your total income, and only pay tax on what remains.
Remember that $3,000 you paid in tax-deductible student loan interest? Well, you take that $3,000 from your $50,000 salary and only pay tax on the remaining $47,000.
Such deductions can be particularly valuable to small businesses running to finer margins.
9 Small Business Tax Deductions to Keep in Mind
As a small business, you have access to numerous tax deductions that you might not even know about! You could be paying far more tax than you actually need to.
Check out the following 9 tax deductions that can save you money this tax year.
1. Charitable Donation Deductions
Many companies pride themselves on their philanthropy.
It’s one of the joys of making money: the ability to give back to worthy causes. You may take a similar approach with your business and be generous with your donations to We Charity.
The good news is that you can claim back these charitable donations from your tax bill!
2. Property Capital Allowances
Some of the costs of buying or investing in property for your business can be deducted from your tax return.
The same goes for the property’s furnishings, utensils, and equipment purchased for business purposes too.
Certain terms and conditions do apply. There’s more information here on the tax relief you can get from property capital allowances. Be sure to check it out!
3. Contributions to Health Savings Accounts (HSAs)
HSAs enable you to create a pre-tax fund to pay for certain healthcare treatment you need.
The money comes from your pre-tax salary, which effectively lowers the amount of income you’ll pay tax on. However, you should check with your insurance provider whether you can get one. Some insurers don’t allow it.
The money in these accounts doesn’t just sit there either. It can accumulate over time. At 65 you can then withdraw it for non-healthcare related purposes!
4. Contributions to Retirement Accounts
Have you contributed to IRAs and/or 401(k)s over the course of your career?
If so, those retirement contributions can all be offset against your taxable income. This can mean significant savings on your tax repayments!
Traditional IRAs and 401(k)s are paid into with pre-tax money. That means you reduce the total income that can be taxed.
5. Interest Paid on Mortgages
The interest you pay on your mortgage can be deducted from your final taxable income.
Oftentimes you can deduct all of it. However, sometimes it’s only a proportion. Either way, mortgage interest rate deductions can make a substantial difference to your end of year tax bill!
It’s worth noting that new laws have recently come into play relating to this. Be sure to check with a legal professional if you’re unsure what is available to you.
6. Home Office Payments
The money you invested in your home office can all be withdrawn from your tax bill too.
However, you need to ensure this room is specifically related to your business. It can’t double for anything else. However, if it is business related only then you can reduce your tax repayments by a significant amount.
7. Vehicle Expenses
Many businesses rely on a vehicle of some kind for successful operations.
You might have a car to visit clients, or a van to transport equipment and/or merchandise. Whatever the vehicle(s), or their purpose, the money you used to pay for it can be offset. Take what you paid for your vehicle off your total income!
8. Essential Supplies
Every business has certain supplies that are essential to its smooth running.
That might mean stationary for the office, ergonomic seating for the desks, safety equipment for the workers, and so on.
Any expense for these sorts of items can all be taken from your tax bill.
9. Utility Expenses
Certain utilities are another standard business expense. Nicely, you can deduct them from your tax bill too.
Electricity bills and mobile phone charges can both be taken off your income total.
Time to Wrap Up
There you have it: 9 small business tax deductions that could save your business money this tax year.
Tax is an unavoidable part of life and business. Thankfully though, small businesses benefit from many possible tax deductions. But first, you have to know what those actually are!
Hopefully, this piece has provided some new ideas for saving money on your tax.
Remember, charitable donations, property capital allowances, HSA and retirement account contributions can all be deducted. Likewise, you can deduct your mortgage interest, home office payments, and expenses for any vehicle, utilities, and essential supplies.
Follow the advice above and you’ll be paying the correct amount of tax in no time!
Did you like this post? Want to learn more about tax? Head over to our tax section for everything you need to know. And be sure to contact us with any questions or comments you have!
