These 4 tax deductions can help grow your business.
Ben Franklin said death and taxes are the only two sure things in life. But unlike taxes, Congress does not meet yearly to make death harder.
Yes, the tax code can get pretty complicated for small business owners, especially when it comes to tax deductions.
Today’s post will add some clarity and help you identify tax deductions that double as revenue drivers to grow your small business.
Let’s go!
Freelance or contracted labor
In the gig economy, freelance and contract labor is abundant and can save you money in two ways.
First, you can deduct freelancer and contractor fees from your business taxes.
You also don’t have to worry about payroll taxes, so hiring freelancers can potentially save you a lot of money.
However, you have to be careful. The IRS rules on freelancer and contractor classification can be difficult to follow.
Be sure to use the proper Form 1099 to record payment, as well. The penalties for running afoul of either of these requirements can be pretty stiff.
Business startup costs
When starting a new business, you can use some startup costs as deductions. But you must be aware of a few rules.
The IRS is clear that you have to treat all the costs as capital expenditures that are the basis of the business.
Also, the expense must be incurred before the business becomes operational to count as a startup cost.
So, what qualifies as a start cost deduction?
Generally speaking, costs incurred for feasibility studies, market and product research, recruiting, hiring, advertising, and professional services like lawyers and accountants could all count.
You can also deduct the costs of setting up a legal entity like an LLC.
Equipment purchases, however, can’t be included. They get depreciated over time.
Of course, this list is broad, so it’s best to check with your CPA to ensure your situation is covered correctly.
Startup cost tax deductions may be a bit difficult to determine. But the next one isn’t, and it can serve as a major revenue driver.
Advertising and Marketing
Every business has to advertise, even if it is only by word-of-mouth. While that’s arguably the most effective and inexpensive type of advertising, it can be hard to rely on it alone.
So, marketing usually becomes a business expense, one whose return on investment has historically been difficult to measure.
However, marketing has changed a lot in the past decade, making measuring ROI easier.
That ROI can start with your business tax burden since most reasonable and necessary advertising is 100% deductible. So, advertising and marketing are revenue drivers and deductions, making them powerful tools for small businesses.
There is one very important caveat.
Normally, a small business can’t deduct any advertising used to promote a political candidate or party. So, if you buy ad space in any publication where the proceeds are intended for political gain, the cost probably can’t be deducted.
Advertising and marketing can be a great business driver and deduction combination, but it isn’t the only one.
Education and Training
Great businesses are rooted in excellent training. So, the U.S. government encourages businesses to provide that training and education by treating them as tax deductions.
Classes, seminars, webinars, and workshops all qualify, as well as subscriptions to trade publications and books that relate to your industry.
Even travel costs, including hotel and meals, can be deducted if the training lasts less than a year.
These deductions extend to individual employees if they pay for any of these items out of pocket. However, they can’t deduct expenses for mandatory training to open a new business or start a new trade.
For example, if you have to pay for a state-mandated licensing test, the testing fee probably won’t be deductible.
All this may sound daunting but don’t worry. The IRS created a free online tool available to help you determine if your training expense is deductible. And, of course, you can always consult with your CPA.
The Bottom Line
Tax laws are complicated, and taking the proper deductions at the right time can be tricky. But by using the information here and working with a CPA, your business can hit as many tax deduction-revenue driver combinations as possible.