Running a profit-generating business can be stressful as it requires business owners to hold many balls in the air. Not only do you need to drive sales and set staff targets, but you also have to juggle behind-the-scenes business compliance regulations. This can make it difficult for business owners and management to stay abreast of tax breaks and deductions that may save them money.
Qualified business income and deductions
Your qualified business income refers to the net amount of income, gain, deduction, and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships, and certain trusts. Generally, this includes, but is not limited to, the deductible part of self-employment tax, self-employed health insurance, and deductions for contributions to qualified retirement plans.
Many owners of sole proprietorships, partnerships, S corporations, some trusts, and estates may be eligible for a qualified business income deduction – also called the Section 199A deduction – for tax years beginning after December 31, 2017. The deduction allows eligible taxpayers to deduct up to 20 percent of their qualified business income, plus 20 percent of qualified real estate investment trust dividends and qualified publicly traded partnership income.
Qualified business deductions reduce tax liability. Knowing which deductions your business is eligible to deduct can help you develop a tax-saving strategy and help you improve your bottom line.
Some of the most common deductions typically include those that are ordinary and necessary in your business industry. An ordinary expense is one that is common in your industry. A necessary expense is one that is helpful for your trade. An expense does not have to be indispensable to be considered necessary.
We take a look at some of the common and standard business deductibles:
- Office and building expenses: Depending on the nature of your business, you typically need a building and office equipment to operate from. The costs of this are deductible.
- Employee-related expenses: You cannot run a business without employees or contractors, thus the cost of employment is deductible.
- Operational expenses: To keep your business running smoothly, you may require a number of tools. This can include once-off items like printers or software to aid the smooth operation of your business. The items, subscriptions and service of tools required for business operation, can be considered business deductible expenses.
- Marketing: Securing new business could cost you in advertising or networking – paid ads and campaigns to promote your business is considered a qualified business deduction.
- Travel: If you travel for business purposes you should be able to deduct mileage or airfare and lodging that relate to business travel.
- Insurance and depreciation: Business assets must be protected to ensure the continuity of your brand and product. Any work-related insurance can be justified as a business deductible expense. The same goes for the value depreciation of business assets over time.
Maximizing tax deductions
As always, it is important to keep a record of your income and expenses when filing your taxes. Business expenses always need to be justified. You can implement expense management or accounting software to help you keep track of business deductions that you are eligible for. This will help you submit accurate figures to the IRS to avoid penalty payments. Remember that there are specific tax rules and calculations that come into play with qualified business deductions. You would also need very specific justifications for certain deductions, so it is advisable to consult with a tax expert to maximize the deductions you are eligible for. They can also help you determine whether you may qualify for any additional other tax credits and advise you on how to save money going forward.
At Fusion, our tax professionals are skilled at submitting accurate and timeous tax returns and aim to maximize the credits and deductions that individuals and businesses are eligible for. We also offer our clients software solutions that suit their needs and make the administrative record-keeping part of tax submission easier. Consult with our experts today if you require tax filing assistance.
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This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.
