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Small businesses usually function on a very tight budget, and saving on business tax services is one of the topmost priorities of small businesses worldwide, irrespective of their industry. Learning about all the possible business tax deductions and income tax savings made available by the IRS to support the growth of small businesses is crucial. The eligibility criteria for these deductions depend on the business category. The business can fall into categories such as S-Corp, LLC, and a sole proprietorship, among many others.
Let us recognize and understand the most prominent business tax deductions for 2024.
Home-office deduction
If you work from home most of the time and have a dedicated office space, you can avail of this deduction. You can list this deduction on your Form 1040 if you utilize a specific part of your home exclusively to run your business. For 2024, the simplified option allows you to claim $5 per square foot for up to 300 square feet, capped at $1,500. You can also claim associated expenses, including repairs, insurance, and utilities related to this office space. The portion of the house must be used exclusively and regularly for business purposes to avail of a home-office tax deduction.
Related Read: Top 15 Tax Deductions for Small Businesses
Real estate taxes for office/business space
If you have a separate business property that plays a crucial part in running the business, such as an office, cold storage, or inventory space, you can deduct the real estate taxes related to it. However, documents supporting the payment of these taxes are required. For 2024, ensure these expenses are properly documented to remain compliant with IRS guidelines.
Cost of business meals
If you have had necessary business meetings with clients, employees, or vendors over a meal, these meals can be deducted. For 2024, the IRS allows a 50% deduction on qualifying business meal expenses. The meal must have been conducted strictly for business purposes and must not be lavish or extravagant under the circumstances.
Cost of goods sold (COGS)
If your small business manufactures products or resells products manufactured by other companies, there are several costs associated with the goods being sold, which can be listed as deductible on Form 1040. The cost of goods sold consists of expenses such as storage costs, the cost of raw materials or finished products, and factory overhead, among many others. Indirect costs such as rents, business taxes, handling charges, and processing costs are also deductible.
Capital expenses
Capital expenses refer to the money spent on capital assets, which are utilized over multiple years. These include vehicles, technological equipment such as computers, manufacturing equipment, and buildings. For 2024, Section 179 allows businesses to deduct up to $1,160,000 of the cost of qualifying property placed in service, with a phase-out threshold of $2,890,000. Bonus depreciation remains at 80% for eligible assets acquired and placed in service in 2024.
Operating expenses
Operating expenses (OPEX) refer to the money spent on the small business to purchase fully consumed assets within a year. OPEX allows businesses to carry on day-to-day processes and is unavoidable. Examples of OPEX include the cost of office supplies and employee wages. These expenses are fully deductible for 2024.
Business education expenses
Specialized training or skill development for business owners and employees can also be deducted as a business expense. These expenses include paid seminars, classes, and certification courses. Deducting these expenses helps lower the business's taxable income.
Business equipment and internet bills
If an internet connection is necessary for your business to function, associated fees such as monthly subscriptions and installation fees are deductible. Similarly, mandatory equipment such as computers, furniture, and other essentials required to run the business can also be listed as deductions. Proper documentation and receipts are crucial for availing these deductions.
Travel expenses
If you are traveling for business purposes, you can list the cost of travel, food, and lodging as tax deductibles on Form 1040. Travel expenses commonly listed include hotel stays, airfare, meals, and car rentals. For 2024, maintaining receipts and detailed records of these expenses is essential to ensure compliance with IRS regulations.
Office supplies and phone expenses
The cost of office supplies such as ink, pens, paper, toner, and phone expenses can also be listed as business tax deductibles. If your business requires a dedicated phone line, its cost and associated charges are deductible.
Employee benefit programs
A business can deduct the money spent on employee benefit programs such as health insurance plans, education assistance, and welfare benefit funds. However, the cost of life insurance coverage cannot be deducted if the small business owner is a direct beneficiary.
Costs of professional services availed
Hiring professional services such as accountants, lawyers, or consultants is a necessary expense for many small businesses. The fees paid for these services are fully deductible. For 2024, this includes services related to legal advice, tax preparation, and business consultation.
Bad debt incurred by the business
Debts deemed uncollectible, such as money owed by vendors or customers that cannot be recovered, can be deducted as bad debt expenses. Proper documentation is necessary to claim this deduction.
Gifts provided to employees or clients
Small businesses often give employees and clients gifts to maintain loyalty and strengthen relationships. For 2024, the IRS allows a deduction of up to $25 per recipient for business gifts. Additional expenses related to employee perks and bonuses may also qualify as deductible.
Charitable contributions made by the business
Charitable contributions to qualified organizations are tax-deductible. For 2024, businesses can deduct cash donations up to 25% of their taxable income. Contributions of goods or services must be valued appropriately to qualify for deductions.
Conclusion
Small business owners often need help with the amount of effort and time that goes into business tax planning. This keeps them from focusing on building their business and addressing matters directly affecting revenue generation. Therefore, it is suggested that owners of small businesses reach out to providers of business tax services that are well-versed in effective tax-saving strategies. Having an in-house accountant or tax professional can be very expensive for businesses starting up or growing out of their initial phases. It is therefore suggested that businesses seek help from online business tax service providers such as NSKT Global. NSKT Global can help businesses save loads of tax money with the most efficient tax-saving strategies. Head over to the official website of NSKT Global to find out how our team can help your business save money on taxes.
