Determining Business Expenses You Can Write Off
by Brian Mckay
Possibly the one positive thing that came out of the havoc wrought by the coronavirus pandemic was the extension of tax season. The traditional April deadline was pushed back to July (though some lawmakers are looking to extend it further to September). The bad news? You'd still have to pay your taxes eventually.
If you're a small business owner, one of the most important things you should know about paying taxes is the expenses you can write-off. You may be a pass-through entity, meaning you don't pay taxes on the business level; instead, you report your business income and pay the taxes via personal income tax returns. However, it would still be beneficial for you to know which of your expenses for the business are tax-deductible.
General Considerations
Incurring expenses are par for the course when you run a business, small or large. Of course, it would be ideal to think that all the money you spend on your business is tax-deductible, but, sadly, that is not the case.
The state and the federal government will only recognize expenses that are essential to running the nature of your business. The IRS will also distinguish if your business is "for profit" or a hobby that just happens to make money.
Most small businesses would also be able to write-off expenses made in the following areas:
Advertising and Marketing
Training and Education
Employee travel, meals, and entertainment
Employee benefits and wages
Rent, lease, and contractors
Office Supplies
Large Items, Machinery and Equipment
While the small and intangible items listed above are still welcome tax deductions, it's the big-ticket items you purchase for your business that yield the highest returns.
Office Machinery
Are you a graphic design firm? Are you in the business of making shirts or signage for other companies? Do you own a car shop? You can write-off office machinery expenses if it is the primary business driver. For example, you could be in the business of selling engraved items for aesthetics or as signage for retail shops. Not only is it a wise business decision to purchase a laser-engraving machine built to the best standards to satisfy your customers, but it is also a tax-deductible business expense.
Company Cars and Trucks
Do you often go out to meet clients? Do you expect your employees to do the same? Introducing a car plan as part of your employee incentive might be a good idea then. You can write this business expense off if you can prove to the IRS that you need the vehicles to conduct your business. If you own a logistics and delivery business, this would be easy to do. If you're in a business where most employees work in the office, this might be more difficult to prove.
If you're in the latter, you may not be able to claim an outright tax deduction, but you could take advantage of depreciation rates. That means that you might not be able to get the full deduction, but the vehicle's depreciation rates could still be off-set.
Any business expense that could be written off is a welcome respite for a small business owner. However, do note that this could be a tedious process, and you be well-advised to seek the help of a tax professional to understand better all the ins and outs of business taxes.