Start-up Business Tax Deductions Everyone Should Know 

By  //  November 11, 2020

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Are you planning to initiate a business, or are you running one? It is understood when you get worried about the taxes involved. Sometimes, when opening up businesses, we are concerned about getting the capital, premises, and taxes involved.

But do you know there are tax deductions that can benefit your business, making you pay fewer taxes? If you are running a business, you need to know the kind of tax deductions you qualify for and how they can benefit your business.

These tax deductions differ from one location to another, depending on its mode of operation, goods being sold, and purchases made to the business. So what are these deductions? Let’s jump into the list. 

Advertising and Promotion

Most businesses conduct advertising and promotion to attract and retain their clients to make more sales and increase their profits. The good news you need to know is that despite promotions increasing your sales and profits, they are deductibles when filing for taxes.

Anything you do to promote your business and make sales is deductible, including all types of marketing, promotional materials, and all online stuff you do to promote your business, including websites, running sponsored ads, Google Adwords, LinkedIn Ads, marketing software, and other promotions.

These deductions enable you to increase your sales and will allow you to pay your taxes on time. However, you need to keep records for this to have tangible evidence when filing your taxes.

Home Office Deductions

If you are carrying out your startup at home, whether as an independent contractor or running your business at home, you need to deduct the home office deductions. So, what is the home office tax deduction? It’s known to include the cost of the space you use to carry on your venture.

To make this deduction, you need to fulfill some of the requirements, including having a measurable space to carry on your business and having an entire area just for the business. If you use this space for other things when the business is not running, then you can’t claim this deduction.

Utilizing the area once in a while or using the place to store your personal belongings will invalidate this claim. How is this space calculated? You need to calculate your home’s total footage and then divide the home office footage with the main house to get a fraction of the area used to run a business.

You can multiply this fraction with the rent to get the actual value of what’s to be deducted. Other deductibles to this office include mortgage, utilities, and repairs.

Travel Expenses

Most businesses require entrepreneurs or their employees to travel from one place to another to secure a deal or deliver clients’ products. Even if you are working online, expenses incurred when delivering clients’ goods, visiting a client, or getting the manufacturer’s stock should be documented since they are deductibles.

Some of the costs you are supposed to note are travels in and out of the shop to print, post, or communicate directly to a client, travel for meetups and events, travel for meetings with contractors, employees, or investors, and when traveling to secure a deal.

All these expenses must be recorded under the auto expenses to be deducted when filing the tax to get deductions. You can remove either by mileage or deducting the actual cost incurred during traveling. 

Business Insurance

Any insurance cover taken to safeguard your business against losses and other risks is deductible when filing the taxes. The insurance covers that are deductible include General liability coverage, Cyber liability insurance, Commercial property insurance, and loss of income insurance.

This situation means that apart from protecting your business, assisting losses and other uncertainties, you are also bringing down your tax margin. Ensure that the insurance only covers your business and nothing else and that there are records to confirm its presence. You also need to check with your taxman on what’s to be deducted from the covers and what’s not.

Meals

Although there has been a debate concerning deducting meals when filing taxes, the deductions still hold. Any meals taken as a result of business meetings or conducting the business are deductible when filing taxes.

Currently, some of the meals to be deducted include those taken when the owner is traveling, meals with employees, meals for employees when working on shifts, and meals with clients and other business associates. One thing you should remember, though, is that it is not a full deduction.

Most deduction always covers 50% of the cost of meals. This situation means that your company has to offset the other 50%, which is never catered on the tax deduction. Does it cover the entertainment? The deduction only covers the meals and drinks taken in a hotel. Any other expense incurred to entertain the guests is not deductible.

Furniture and Decorations

Office furniture and decorations always eat up a large chunk of the business capital. The good thing is that the cost is deductible when filing the taxes.

There are two main ways you can deduct the furniture and decorations, either by taking them as an expense and writing them off or take them as assets and deduct their depreciation.

Which type of furniture is covered? They include the stools, chairs, tables, sofas, and any other furniture used to run the business. Decorations include lighting, plants, props, rugs, carpets, and much more. Please keep the receipts and expenses details when purchasing these items.

Licenses and Permits

In most states, you can’t run a business without licenses and permits. Some of the licenses and permits cost a fortune, and they might take much of your startup capital.

Regardless of the number of licenses and permits, they are all deductibles when filing for taxes. Whether it’s a general business permit, fire permit, council permit, inspection permit, or any other license, they can be deducted to reduce your tax payable.

Other business deductions for startups include bank fees, charitable contributions, commissions, cost of goods sold, education and training to the owner and employees, and other related expenses.

Before making these deductions, you have to inquire from the tax department if they apply to your area and their rates since some states charge differently. You also need to hire a competent accountant to help you document all these deductibles easily to avoid inconveniences during the filing period. 

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