Owning a business brings new challenges everyday. These also bring rewards for you as a business owner. Incurring expenses puts constant pressure on business finances.
There are ways in which one can deduct these expenses while calculating taxes and save oneself from being charged extra for taxes.
This is very important for making the business more profitable. Here is a list of some important deductions that you must know of:
Communication and Workspace Expenses
You can deduct direct business expenses like internet and phone bills. Personal phone use should not be deducted. Only business phone use should be deducted from taxable income.
If you use the entire internet time for business purpose, it can be deducted from taxable income.
The office that you own or rent is a part of business expenses. The home office expense is deductible from your taxable income considering that the workspace is used exclusively for your business expenses. You should always keep a map of your office space ready with you in case you have to show it to the tax authorities. You must make sure the measurements on the map are absolutely correct.
You can deduct depreciation, interest, insurance, property tax and maintenance from your taxable income. You should preferably use the, standard method to calculate these deductions. In this method, you can directly deduct the expenses that have been incurred for your workspace. If you do-not have proper records for the expenses incurred, you can go for the simplified method in which a prescribed rate has to be multiplied with the premises square footage. You can use this option if your workspace is smaller than 300 square feet.
Insurance Premium and Food
Insurance premiums are deductible while calculating taxes for self-employed individuals. the deduction also includes premiums paid for spouse and children(less than 27 years of age).
Meals too, are tax deductible. These could be meals that you have while travelling for business purpose or meeting clients. You should keep all receipts of the meals consumed, to avail the deduction. You can either avail 50% of the cost of meals or an equal percentage of the standard allowance.
Travel and Entertainment
You can deduct 50% of your business entertainment expenses considering that you are getting entertained with the person you are conducting business with. Keeping all records and receipts is a must in this case as well.
Business travel expenses are tax deductible too. A business trip must be a planned trip specifically for business purpose. It should be outside the city of your workspace.The trip should include serious business activity rather than leisure combined with business.
Proper records and receipts for these expenses must be maintained for availing the deductions. Your travel expenses are completely tax deductible, the meals and entertainment will be 50% only.
Education and Subscriptions
If you incur educational and skill improvement expenses, then these would be tax deductible. These improvements, although, must be related to the business that you are in, to qualify. If you are subscribing for educational material, magazines and books for business purpose, then these too are deductible expense.
If you have taken a loan for your business, then the interest that you pay is deductible from your taxable income. The interest on your credit card is tax deductible when the purchases are made for business purpose only.