What Counts as a Deduction?
- Business expenses that are both ordinary and necessary.
- Ordinary simply means that the expense is common and accepted in your specific field. A necessary expense, on the other hand, is helpful or appropriate for your trade or business.
- For example, a traveling salesman could deduct car expenses but a work-from-home freelance writer could not (unless the car is being used to drive to a work-related meeting).
- Do not forget to keep track of receipts and related accounts of when and why an expense is deductible. Keep in mind; these expenses are usually deductible if the business operates to make a profit.
Personal Expenses versus Business Expenses
- Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal use. You can deduct the business portion.
Here are 6 small business tax deductions you can take to potentially reduce your taxable income.
Home Office Deduction
- Is there a specific space in your house that you use to work from home, and you work from home regularly?
- Then you can deduct certain home-related expenses, which could include mortgage interest, insurance, utilities, repairs, and depreciation. The home office deduction is available for homeowners and renters.
- Contributing to a retirement plan is a simple way to take advantage of a tax deduction. Full-time employees with a work-sponsored retirement plan who freelance on the side can still use a SEP IRA or SIMPLE IRA as well.
- What if you want to go visit your parents and there just happens to be a conference in the area?
- You can deduct the cost of traveling to the conference and staying in the hotel while you squeeze in some time to visit with your folks. Taking your kids with you cannot be expensed either.
Hire Your Children
- That is right. You can hire your kid (or kids) to help with the business. Your child can earn up to $6,300 without having to file taxes.
- If your business is taxed as a sole proprietorship or partnership (in which each partner is a parent of the child) you will not owe any Social Security or Medicare taxes on your child’s income if he or she is under the age of 18.
- You can indeed expense the cost of throwing a holiday party for your employees.
- But be careful, there are regulations (like all employees need to be invited). Keep a copy of the invitation and guest list. And do not get too lavish.
Entertaining Clients or Customers
- Taking a client out to a fancy dinner, concert, sporting event, or other entertainment for business purposes can be a write-off.
- 2021-22 some meals and entertainment will be 100% deductible, but be sure to keep proof of the guest list as well as how the event was related to business.
If you have any questions or would like to chat with us about these business deductions, please give us a call to set up a consultation.