Deductible Business Expenses You Need To Know
As a small business owner, it’s important to know where money resides and all the places you can save! The top place to look is actually in your taxes. As a small business, you have various expenses you shoulder throughout the year. Many of which can be deducted and reimbursed through your tax returns.
Here are 5 deductible business expenses you probably didn’t know about:
Outsourcing – Obtaining goods/services from an external party, especially in place of an internal source. Example of outsourcing: If you hire a part-time bookkeeper (20 hours a week) at a price of $20 an hour, the monthly pay will be $1,600. Including employer payroll taxes, the total pay for a part-time bookkeeper is $1,818 a month. An alternative is to hire a CPA at $900 a month. Payments to a CPA are tax deductible, no additional overhead is required, and this can be a great way to get expertise at a low price.
Hiring Family – One of the benefits of operating your own business is hiring family members. The IRS allows you to avoid payroll taxes when hiring your children. Additionally, payroll costs are tax deductible, so money you pay to your children can be deducted from your business income. So if you pay your child $12,000 a year, you can deduct $12,000 from your taxable income.
Does that mean your child will have to pay taxes on $12,000 worth of income? Not necessarily! Anyone making less than $12,400 a year or $24,800 if married filing jointly (the standard deduction for 2020) may not be required to pay taxes. Does that mean you have to pay payroll taxes on the $12,000 you pay your child? Nope! If your child is under 18, you may be able to avoid FICA (social security and medicare) and FUTA (federal unemployment) taxes. If your child is over 18 but under 21, you can still avoid FUTA taxes.
Home Office Expenses – You can include Microsoft software licenses, equipment, laptops, iPad, phone bill, desk, license fees, and permit fees.
Continuing professional education (CPEs) – In order to deduct CPE, the expenses must maintain or improve your job skills or must be required by your employer or by law to keep your salary. Expenses to learn a new trade or job or to qualify for a new career aren't deductible.
Fringe Benefits – A corporation can set up employee benefits and deduct the costs of running these programs, including all premiums paid. The employees, including you as the owner/shareholder, may also not pay taxes on the value of those benefits. Fringe benefits include dependent care expenses, educational assistance, health insurance, etc.
If you struggle every tax season then my Taxes 101 e-book is perfect for you! It’s no secret that tax laws are not fixed and ever-shifting. But your ability to navigate them and use taxes to your benefit should never change.
