Spend an hour on social media watching videos about small business tax deductions and you’re likely to walk away thinking your small business can get a tax-write off for anything: your home, car, meals, clothing, and all kinds of other expenses.
Reality doesn’t always line up with the hype though, and in this case it can be very expensive to take bad advice.
Tax write-offs can be very valuable to small businesses by reducing the total amount of tax you pay. But you need to understand how to use them correctly, and make sure you follow IRS requirements.
Here we’ll provide an overview of how tax write-offs work for small business owners, and potential pitfalls to avoid. We’ll even share some specific examples of bad advice about tax deductions.
Warning:
Nav Technologies, Inc. does not provide legal, tax, financial or other advice. We recommend business owners consult their own experts and attorneys.
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What Are Tax Write-Offs?
When you start a small business, one of the common pieces of advice you’ll hear is to maximize your tax deductions.
But what does that really mean?
Tax write-offs are qualified business expenses that reduce your total taxable income.
For small business owners, these write-offs are an important way to lower your tax bill by reducing the amount of business income subject to taxes.
When you claim legitimate business write-offs, you’re lowering th incorporating inclusion into b2b marketing e profits on which you need to pay state and/or federal income tax, which can result in substantial savings for your business.
Tax write-offs vs. deductions
The terms “tax write-offs” and “deductions” are often used in uk data terchangeably. Both refer to business expenses that can be subtracted from your gross income (a.k.a. total income) to determine your taxable income.
In either case, expenses must be both ordinary and necessary for your business operations to meet the minimum IRS requirements.
Common Types of Tax Write-Offs for Small Businesses
Here are some common business expenses that may be tax deductible. Again, they must be ordinary and necessary for your business operations, so talk to your tax advisor to clarify which ones apply to your business.
1. Office supplies
The costs of running your day-to-day business operations include office supplies, whether that’s shipping boxes, printer ink or janitorial supplies for your office. These essential items are fully deductible in the year you purchase them if they’re used for your business.
Tip: Consider purchasing office supplies through net-30 vendors that report to business credit. While it won’t affect tax deductions, these accounts can help establish business credit when paid on time.
2. Home office deductions
If you run your business from home, you may qualify for tax savings through the home office deduction. However, this deduction comes with strict requirements.
You must use part of your home regularly and exclusively for business, and it must be your principal place of business or where you regularly meet clients.
The IRS offers two methods for calculating this deduction. The standard method allows you to deduct actual expenses based on the percentage of your home used for business.