Taxes create confusion for many small business owners when it comes time to file. What can be deducted on your business taxes and what can’t be? Here’s a breakdown of common small business taxes and their deductibility:
Deductible Small Business Taxes:
- State and local income taxes on business income – Any state or local income tax paid for your business income can be deducted. The $10,000 limit does not apply to business taxes.
- Real estate and personal property taxes – Taxes paid on business property such as office buildings, retail space, equipment, machinery, and vehicles are deductible.
- Self-employment tax – The employer portion of self-employment tax can be deducted.
- Sales tax – Taxes paid on business purchases (inventory, equipment, etc.) are deductible.
Non-Deductible Small Business Taxes:
- Federal income taxes – Federal taxes paid on business income cannot be deducted on your federal return. But check your state rules because federal taxes may be deductible on your state tax return.
- Payroll taxes – While payroll taxes like Social Security and Medicare are deducted from employee paychecks, they are not deductible by the employer.
- Estate and gift taxes – These taxes are not deductible business expenses.
Other Deductible Small Business Expenses:
- Employee expenses – Wages, health insurance, retirement contributions, professional training, and other benefits provided to employees are generally deductible.
- Mileage and transportation – Business mileage deductions, vehicle expenses, and transportation costs can be deducted.
- Home office deduction – Part of your home dedicated to your business may qualify for a home office deduction.
- Equipment and supplies – Any equipment, tools, supplies, or materials purchased for your business are deductible expenses.
Properly tracking deductible expenses and understanding small business taxes can be challenging. If you need a refresher, then our online bookkeeping course can help. Learn best practices for bookkeeping and maximizing your tax deductions. Our online course teaches simple methods for tracking business expenses, income, taxes, and more.
Be sure to keep thorough documentation such as receipts and mileage logs to claim all eligible small business tax deductions and expenses. Consult a qualified tax professional to maximize your business deductions and taxes. With proper record-keeping, you can take advantage of these small business tax deductions.
