As a business owner, you want to make sure that you're taking advantage of every deduction available to you. By doing so, you can save money and invest it back into your business to help it grow and succeed. Tax season can be stressful for many business owners but is a necessary part of doing business and we encourage you to reframe your mindset around it. As a business owner, you are responsible for creating jobs and helping to keep the economy alive and thriving.
We are going to provide our strategic framework for considering what expenses qualify as tax deductions.
One of the most significant areas where businesses can save money is through payroll expenses. As an employer, you can deduct the cost of your employees, any bonuses given to them, team equipment, and even the cost of using an employment agency to help with hiring. Flexible spending accounts, fringe benefits, payroll service fees, and relocation costs are also deductible expenses. It's important to note that if you're an S Corp and you're paying yourself, you are a business deduction to your business. However, if you're an LLC and you're not an S Corp, you cannot put yourself on the payroll, and you are not a business expense. Instead, you'll have to take money from your business as an owner's draw, which may affect your business's benefits. When it comes to payroll, it's important to update your payroll system regularly, including any changes to your health insurance plan. This ensures that your deductions and contribution amounts are accurate, which can save you a headache later.
Training and development are also deductible expenses. As a business owner, investing in personal development and the development of your team is essential to stay competitive. This includes expenses related to books, magazines, ebooks, newsletters, conferences, business coaches, mastermind programs, and business seminars. Travel expenses can also be deducted if you're traveling for business purposes. This includes transportation costs such as airfare, rental cars, Uber or Lyft rides, and even baggage fees. Lodging expenses and meals during the trip are also deductible. However, it's important to note that meals are only 50% deductible unless they are for a company party or given to the public. It's essential to keep in mind that tax laws change regularly. What was deductible last year may not be deductible this year, so it's always best to consult with a tax professional to ensure that you're following the latest regulations.
Another key tax benefit is investing in your business. By making capital expenditures, like buying new equipment or furniture, you can receive a tax benefit for the next few years instead of just for the current year. This can help lower your tax liability and improve your bottom line.
There are a few miscellaneous deductions you could also be taking advantage of. If you use your cell phone 100% of the time for business, it is 100% deductible. However, if you use it partially for business and partially for personal use, you can only deduct the percentage of time you use it for business as a business deduction. Gifts and flowers can also be tax deductible. However, it is important to note that there is a limit on how much you can give, which is $25 according to IRS guidelines. If you want to give a gift that exceeds this limit, you can deduct only $25 of it. It's also important to understand that if you want to give a gift to an employee and not have it show up on their paycheck, it will be considered an owner's draw, which means you will shoulder the burden of the taxes. Charitable contributions can also be tax deductible, but there are some important caveats to keep in mind. For example, you cannot deduct the value of your employees' time if they work on a task for charity. It's also important to note that charitable contributions are a personal deduction unless you're a C Corp. In addition, while giving to charity is a good thing, it's not always the best way to reduce your tax liability.
One of the most important takeaways from the conversation is the importance of keeping personal and business expenses separate, especially if you are an S Corp. There could be serious tax implications for having too many personal expenses in your business account. It's essential to do your research, ask your CPA about it, and make informed decisions when it comes to your business expenses.
Tax benefits and deductions can be valuable tools for business owners to help lower their tax liability and improve their bottom line. However, it's important to understand the rules and limitations to avoid any potential problems with the IRS. By keeping good records and working closely with your CPA, you can make the most of these benefits and deductions while minimizing your tax burden.