Tax compliance is necessary for businesses, preventing costly penalties and charges. As such, you must know what needs to be done come tax season—including reducing your tax bill through deductible items.
Although often overlooked, knowing how to reduce your taxable income is just as important as it helps you save money through tax credits and tax deductions. In fact, the IRS has $1.4 billion in unclaimed tax refunds as millions of Americans are unaware of their eligible credits.
If you’re an expat who owns one or more businesses, then you want to make sure that you’re not missing out on any opportunity to reduce your tax liability. Tax deductions are an effective tool to help businesses save on taxes.
10 Tax Deductions for Businesses and How to Maximize Them
Generally, business-related expenses are considered tax deductible so long as they are ordinary and necessary business expenses. Still, it’s in your best interest to consult a tax expert on which is viable for your business. Here are the most common business tax deductions to maximize.
Advertising and marketing expenses
Marketing and advertisements play a crucial role in growing your business. These activities help get the word out about your company to your target market.
However, these services may rack up a huge cost. As such, you may want to consider this as part of your tax deductions for your business. These can range from online to offline ads and marketing services—any expenses you incur from promoting your business are considered tax-deductible.
Whether you’re a freelancer or a home-based small business, you can deduct taxes at $5 per square foot of your home office. The maximum space of a home office that will entitle you to a tax break is 300 square feet. You can write off rent, utilities, maintenance, mortgage interest, and the like for your office space.
However, you’ll need to prove that the space you have is qualified for a tax deduction. This means you must prove that the work area is used only for business activities and is your primary place of business, and that you have no other external offices where you conduct most of your operations.
It’s not uncommon for businesses to encounter customers or clients incapable of paying for products and services they’ve availed. These uncollectible accounts are known as bad debts, and you can write them off as tax deductible.
Bad debt deductions include loans, credit sales, or any other unclaimable money your business lent. Just prove that these are business debts, not personal ones.
Employee compensation and benefits
Typically, employee salaries and benefits are fully tax deductible. This business tax deduction allows you to write these off as long as the employee is not a sole proprietor, partner, or LLC member of the company. You also need to prove that their salary is “reasonable” and “necessary” and that the employee has provided services.
On top of the salaries, you can also write off other benefits such as education assistance, paid holidays and vacations, health insurance, contributions, and the like.
You may have a charity or nonprofit organization that you designate as a beneficiary of your donations. If that’s the case, your donations and gifts can qualify for a tax deduction, including cash, property or equipment, and other expenses incurred from assisting them.
For a sole proprietor, LLC, or partnership business, you can claim such donations on your personal tax return. Corporate businesses can claim these expenses using the corporate tax forms. Note that these organizations and charities must pass the qualifications set by the IRS to know if they make you eligible for the tax deduction.
Business-related travel expenses
Travel expenses are costly, especially if your business requires you to go on official trips often. For that reason, you can include them as a business tax deduction as long as the qualifications are met.
On top of proving that it’s necessary for the business, the trip must be outside your tax home or the area where your company resides, taking more than a full-working day.
If your trip meets the criteria, you can write off airfares, accommodations, meals, and other expenses related to the business trip.
Professional service fees
You can write off fees incurred from hiring lawyers, accountants, or bookkeepers to supplement the functions of your business. You can also include the costs of subscriptions for accounting or bookkeeping software.
You can also increase your tax deductions when you incur costs related to meeting a tax expert and the hiring of tax resolution services.
This tax deduction can also help significantly reduce your taxes considering how costly utilities are. Utilities include electricity, water, sewage, and waste management expenses. For landline and internet bills, ensure these are only used for business purposes.
If your landline is also used for personal calls, only the percentage used for business purposes is tax deductible. The same goes for internet bills, so have a reasonable allocation for business purposes when including them in your tax returns.
Any courses or seminars you’ve attended that bring value to your business are fully tax deductible. Even educational materials, including books, are tax-deductible as long as they’re used to upgrade your skills relevant to the business. Classes that are required in keeping a good standing license, like certification courses, are also included.
You can also write off expenses from classes that help improve your day-to-day business operation.
Office renovation and improvement expenses
Your building or office can depreciate over time. Here, you can include improvements and repairs in your tax deduction since these can be expensive.
Suppose you want to upgrade your office space by installing built-in shelves, carpets, or freshly painted walls. These can all be deductible from your taxes as long as the upgrades are necessary for the business and can improve the space’s functionality. Required permits are also included in this category.
Know Your Tax Deductibles
Staying compliant with tax regulations is vital in avoiding fees and serious charges. However, taxes can be as costly if you’re unaware of the deductibles. As a tip, business-related expenses are usually tax deductible, but some may not apply to your business.
It’s best to consult a tax expert, so you can determine which expenses are deductible for your business. If you need help, Tax Samaritan’s team of tax experts and enrolled agents can provide professional-quality tax resolution services. We have been helping numerous expats and taxpayers with our tax services since 1997.
Our experts can help you save money from taxes while staying tax compliant. Get a Free Tax Quote →