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How to Manage Small Business Tax Deductions

Read our guide on tax deductions for small businesses to find out ways in which you can reduce taxable income and save money.

Running a business entails a lot of financial planning. Small decisions need to be taken here and there, which produce a noticeable effect on your taxes. Maintaining and tracking business expense deductions is a significant task, especially for creative enterprises.

Tax deductions are ways in which you can reduce taxable income and generally result from expenses incurred to expand the business. For small businesses, it is a great way to save money and prevent unnecessary overpaying during tax season.

Tax Deductions Small Businesses Should Focus On

Filing taxes can be time-consuming for creative and local businesses. Small businesses in any industry pay [an average tax rate of about 19.8%](http://Filing taxes can be time-consuming for creative and local businesses. Small businesses in any industry pay an average tax rate of about 19.8%. Businesses with a sole owner pay 13.3% tax, and multiple owners pay 23.6% tax on average.). Businesses with a sole owner pay 13.3% tax, and multiple owners pay 23.6% tax on average.


To reduce your tax liability, you can claim basic deductions for your small business through:

  • Business Trips and Meals: Keeping clear terms to qualify as a business trip or meal and keep bills and related documentation for reference. You can consult the IRS (Internal Revenue System) website for a list of deductible travel expenses for your business.
  • Vehicle Expenses: Writing off your car costs if you use your vehicle strictly for professional needs. You can also
  • Insurance: Insurance is a major part of any business, and you can file such costs on your tax return. This includes business insurance, renter’s insurance, vehicle insurance, and so on.
  • Professional Services: Any professional service like consulting, bookkeeping, legal, etc., can be written off as a tax deduction.
  • Office Expenses: Maintaining a workspace involves several expenses, like stationery, rent, furniture, laptops, printers, and other office supplies. This also includes the cost of maintaining a home office.
  • Communication and Energy Bills: You cannot operate without phones and internet access. You also need power in your office or factory, and you can make changes to make the space more energy-efficient. These expenses can be deducted.
  • Any Debt: Any loans or debts incurred for business purposes can be considered as a tax write-off.
  • Salaries and Charity: Even if you are a small business owner, you can include employee salaries and benefits under tax deductions. The same goes for any charitable contributions or donations your company makes to qualifying organizations.
  • Investments and Depreciation: You can write off loan interests used for business investments and match them with your investment earnings. You can also add the depreciating value of your machines or other business assets.
  • Marketing Expenses: Like other business-related costs, marketing and promotional expenses can be used as tax deductions.

Apart from the above, you can include aspects like medical coverage, property mortgages, real estate taxes, HR activities, employee welfare practices, and business launching expenses in your business expenses list.

How to Track Your Tax Deductions

Small business tax deductions make a big difference for creative businesses as they lower the income tax amount to be paid. The ideal solution is to hire a tax professional to calculate these deductions.

You can also consult Form 1120-W or 1040-ES on the IRS website. Additionally, there are easy ways to keep track of your tax deductions so that there is no confusion or scrambling while filing for IT returns.

  • Plan your annual expenses carefully and preserve all receipts and backup documents for expenses.
  • Keep last year’s tax returns handy while filing for the next year. Check if you covered all tax categories.
  • For better expense tracking, keep your business bank account separate from your personal one.
  • Use a business credit card and check its itemized report for a clear understanding of how much you spent on what.
  • Pay estimated quarterly taxes to soften your annual burden.

Tax Deduction Savings

Small businesses and creative enterprises can save a large sum of money through standard or itemized deductions.

If you opt for a standard tax deduction, you can apply for a flat amount depending on your filing status and qualification. In itemized deductions, you can list any and all tax deductions you qualify for. The more you can show, the more money you save.

Due to the coronavirus pandemic, tax laws have also been modified for the 2021 fiscal year. You can check out the new rules and benefits on the IRS website before making a decision on your taxes.

Closing Thoughts

Paying income tax might seem like a pain for small companies, but if done right, it can save tons of money and time. For a smooth tax filing process, consider preparing throughout the year by organizing and categorizing your business expense activities. Doing so will make tax-paying a pleasant experience!

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