Hi, I'm Candace
Welcome to NewWay Accounting! Explore our resources for small businesses and entrepreneurs to help you maximize your profit and amplify your tax savings!
Did you know that approximately 93% of small business owners overpaid on their taxes over the past 12 years, based on a survey conducted for Forbes a few years ago? 93%!!
Being a small business owner, freelancer, or independent contractor is hard enough – but it’s even harder and more expensive when you’re paying more than you should be to Uncle Sam. Now, you certainly aren’t expected to be a tax expert (you’re running a business after all) but it’s good to know some of the more popular tax saving strategies.
Below are the top 6 tax deductions for your small business.
1. Deduct Your Home Office
Many small business owners operate out of a home office. A portion of personal home expenses are deductible as a business expense if a portion of your home is used regularly and exclusively as your principal place of business. The deduction includes both direct costs (e.g., painting a home office) and indirect costs (e.g., the percentage of rent or mortgage interest and real estate taxes that reflect the percentage of business use of the residence). Get all the details here!
2. Deduct Your Vehicle Expenses
Many small businesses use some type of vehicle in their day to day operations. The cost of operating the vehicle for business is deductible only if you are tracking your business mileage. The trick here is to calculate what percentage of the time your car is being used for your business versus for personal reasons. In deducting costs, the need to keep records of costs (e.g., gasoline, oil changes) is eliminated if you rely on the IRS standard mileage rate instead of deducting your actual outlays. You can use the standard mileage rate whether you own or lease the vehicle. Learn more here!
3. Equipment Write-Offs
Section 179 allows small business owners to avoid depreciating certain purchases over numerous years by treating equipment as a business expense in the year it was purchased (with an upper limit of $1,080,000 in 2022). Business equipment encompasses anything a small business owner may need to run a business, from an industrial-grade oven to office furniture to computer items.
If you or your employees travel out of town on business, the cost of transportation (for example, airfare) and lodging is fully deductible. You must meet substantiation requirements explained in IRS Publication 463 to claim any travel deduction. However, local commuting costs usually are nondeductible – bummer. Check out this handy travel tip!
5. Meals (and NOT Entertainment)
If you meet with a business contact for a meal and discuss business, the cost is 50% deductible. For example, when you take a client out to lunch and spend $20, you get to write-off $10. Good news: There is an exception in 2022 where if your meal is from a restaurant, you can deduct 100% of the cost. Now for the bad news: Starting back in 2018, no deduction can be claimed for entertainment costs. So next time you take your clients out golfing – you cannot take a tax deduction for those tee fees. Another big bummer. Get all the info here!
6. Write-off Interest On Business Debt
Interest paid on business loans are usually fully deductible as a business expense (e.g., interest on a SBA EIDL loan). However, interest on loans by owners to buy their businesses are treated differently. Distinguish business interest from an owner’s investment interest or passive activity interest, which is not a business deduction.
Candace is the founder of NewWay Accounting and is a CPA who specializes in working with fellow entrepreneurs. She strives to take the fear and anxiety out of taxes and help empower small business owners to feel more confident and in control of their finances.
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