The Complete List of Tax Deductions for Small Business
To lower your taxable business income as much as possible, familiarize yourself with our complete list of tax deductions for small business.
Did you know there are around 400,000 small businesses started every year? Was yours one of them?
If so, congratulations! Launching your own business is a huge milestone, and we hope you're among the 40% of small businesses turning a good profit.
Running your own company may be all fun and games—until tax season. If you don't know how to file business taxes for the first time, you might find yourself Googling "small business taxes for dummies" around April 15th.
Filing small business taxes for the first time is no easy task, but help is available. Tools like an income tax calculator are a great place to start, but it's only the beginning.
Do you have all your paperwork in order? Do you know about each of the first-year small business deductions available to you?
Read on for our complete guide to filing small business taxes for the first time.
Not all small businesses are created equal. Depending on the structure of your company, you'll need to prepare different tax forms.
Here's a quick breakdown of tax liabilities for different business structures.
The easiest way to structure a company is with a sole proprietorship with you (the owner) as the sole proprietor. You are technically considered to be the same legal entity as your business.
As a sole proprietor, you'll need to fill out a Schedule C (Profit or Loss From Business) on Form 1040. You'll also use the Schedule SE Form to determine your self-employment taxes.
If your business is run by two or more owners sharing profits and losses equally, your business is a partnership. This is also taxed at the same level as personal income (for each owner).
Rather than each partner paying federal income tax, use Form 1065 (Return of Partnership Income) to show the company's expenses and profits. Each partner should use the Form 1065 Schedule K-1 to document their share of gain and losses.
The next step up in the business world is a corporation, which operates as a separate legal entity from the owner. It's important to note that corporations are double-taxed, first at the business level and then at each owner's personal income level.
You'll use Form 1120 (US Corporation Income Tax Return) to calculate and pay federal income tax for your business. You'll also list your business expenses and gains in this form.
An LLC is made up of a combination of partnerships and corporations. The owners share tax liabilities while being viewed as separate legal entities from their business.
A benefit of an LLC is that taxes pass through to the personal income level, which means your company won't be double-taxed. The forms you'll need depends on the specific way the LLC is set up.
A sure way to maximize your tax refund is to get familiar with all those business deductions.
Make sure you keep thorough, accurate records of all expenditures for your business. Even if you're not sure whether something is tax-deductible, save those receipts anyway. Your professional tax preparer can inform you of what you can (and can't) deduct.
At the very least, you should be able to deduct your home office and vehicle expenses. Let's take a quick look at each.
If you run your business from your home and have a dedicated office space, you can deduct those expenses from your tax return. To do so, you'll need to measure the square footage of the workspace and determine how much of your total home area it encompasses. You can then deduct that percentage of your total household expenses.
Do you use your vehicle for business purposes (other than your standard commute)? Keep track of those miles you drive to meet clients or buy supplies. You should also keep a careful record of maintenance costs and other car-related expenditures.
If you travel for business, be sure to track all those expenses too. Attending a conference or enrolling in classes related to your profession should qualify as education write-offs. Also, be sure to keep receipts for any legal or licensing fees.
Depending on how many employees you have, some of your payroll expenses might also qualify for tax deductions. These could include your contributions to employee benefits or wages for your employees.
Many new business owners face a nasty surprise in the form of self-employment taxes. When you were employed by a company, your employer paid half of your social security and Medicare taxes.
Surprise! As your own employer, you now have to pay both portions of these taxes. This can be quite the eye-opener on April 15th if you haven't prepared for it.
As you prepare your quarterly tax estimates, make sure to account for the increased self-employment tax. Keep in mind that on April 15th you'll have to pay, not only last year's balance due but also your balance due for this year's first quarter.
Part of being a successful business owner is learning to manage your cash flow. This is one instance when you'll definitely need that skill.
Filing taxes was complicated enough when you worked for someone else. Now that you're a small business owner, things just got even more complex.
It doesn't have to be that way. Use the tips outlined above when filing small business taxes for the first time and you're sure to feel a little less overwhelmed.
Of course, you don't have to figure everything out on your own. In fact, you probably shouldn't!
Professional tax preparation services are available at very reasonable prices. Why spend time and energy worrying about taxes when you can let the pros file for you?
Click here to learn more about customized tax preparation services to fit your business needs.
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