Small businesses are fragile; little wonders why one out of five businesses fail in their first 24 months of operations while half of the remaining businesses fail to survive before the end of their fifth year of operation. This stat was released by the United States Bureau of Labor Statistics.
Tax is a levy imposed by the government on individuals and businesses.
While it is commendable to pay one’s tax when due, most small businesses do not know how to go about it. As expected, they go into extinction due to the enormous taxes that they pay.
What Are Small Business Tax Deductions?
Small business tax deductions are essential expenses that should be removed from the taxable income bills before tax payment. Unfortunately, most small business owners do not know how to claim these necessary or unavoidable expenses before the tax payment.
To understand this better, let’s assume that you run a delivery business and make an average of $15,000 a year. As expected, you are required to pay a certain amount of tax to the Federal and State government, let say a combined amount of 30%. That would translate to a whopping sum of $4,500!!!
However, if you have detailed knowledge about the business tax deductions, you would pay far less than that amount.
First of all, necessary expenses like maintenance of vehicle fee, internet subscription fee, and other fees should be removed from your taxable income. After subtracting this from the total amount, you can then pay 30% of the remaining income as your tax.
Which Expenses Qualifies as ‘Essential Expenses’?
You need to know that not all expenses can be subtracted from your taxable income. It is required that such costs be deemed ‘necessary and unavoidable’ by the United States Internal Revenue Service (IRS) before such expenses can be written off.
Therefore, you should speak with your certified public accountant (CPA) before submitting your taxable bill to the IRS. The professional would help you identify the necessary and unavoidable expenses unique to your type of business.
Regardless of the type of business that you operate, here are five ‘important’ expenses that apply to most companies:
- Workers’ wages/salary
- Airtime and Internet subscription
- Business meals and travels
- Office rents
While this list is not exhaustive, you should identify other unavoidable expenses associated with your business.
Finally, small business tax deductions are something you should not joke about if you want your business to thrive and stay afloat.