As a small business, saving money any where possible is the name of the game. One of the most efficient ways to get the most out of your money, especially for a small business, is to take advantage of tax-deductible items. The best way to seize these deductions is to know exactly what they are and what they can be used for.
Tax deductions save small and large businesses alike money by reducing the amount of taxable income a company brings in. For example, a business dinner or expenses from entertaining a client can be deducted from your taxable income, resulting in lower taxes for your company and more money to add to your revenue.
One of the biggest challenges of tax deductions is to take advantage of all tax deductions available and to save the most money. There are so many surprising tax deductions for businesses. Here are the five most overlooked tax deductions that all small businesses need to take advantage of.
- Tips. Although there is no “tip expense” category on your tax return, many small business owners assume that tips are not a deductible expense. This isn’t true – even though it does not have its own category, the tip can be included in the total meal expense – so be generous!
- State Sales Taxes. If you live in a state that does not charge state income tax, you can still deduct state sales taxes. Keep in mind, however, that you can’t deduct both state and local sales tax and state and local income tax — you must choose one. If you live in a state that charges state income tax, the state income tax deduction will normally save you more money.
- Parent-paid student loan interest. In the past, student loan payments made by parents did not warrant a tax break for anyone – the law stated that one must be both liable for the debt and pay it yourself to be qualified for a deduction. However, the IRS now treats loans paid by Mom and Dad as if they gave the money to their child to pay the loan. If the child is not claimed as a dependent, they can qualify to deduct up to $2,500 of their student loan interest paid by their parents.
- Jury Pay Paid to Employer. Because some employers choose to still pay full salary to their employees as they perform jury duty, they sometimes ask the employee to submit jury fees to company coffers. However, the IRS dictates that this is recorded as taxable income. If your employer requests jury pay, you have a right to deduct this amount from your taxable income.
- Child and Dependent Care Tax Credits. If you pay your childcare bills through a work reimbursement account, it can be easy to overlook the credit. You can run a maximum of $5,000 through a reimbursement plan through your employer but spend more than that on child care, you can claim that credit for up to an extra $1,000.
Needless to say, each of these tips requires a savvy business owner who is meticulous about tracking her expenses. While keeping an organized account of all spending documents is useful, having them all in one place stored electronically can prove to take the guesswork out of tracking your finances.
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