Small business owners tend to incur a large amount of expenses, some of which they have to pay out of pocket, over the course of a given year, and may want to look for ways to write them off when tax season rolls around. However, it’s vitally important that these entrepreneurs know what is and isn’t tax-deductible so that they can avoid running afoul of the IRS.
Basically, when trying to determine what they can and cannot include on their taxes to reduce their overall burden include “ordinary” and “necessary” expenses, according to a report from the Benton Harbor Herald-Palladium. Essentially, the former type of cost is considered to be what’s common and accepted within the field in which a small business operates, and the latter essentially means what would be appropriate for a company to purchase.
Office supplies and equipment are both considered to be perfectly reasonable things for a company to buy, and thus are easily deducted on a company’s annual tax filing, the report said. Everything from pens and paper to toner, desks, computers, and so forth fall into this category, as many owners might expect. However, beyond that things can become a little trickier.
For example, when a company can write off mileage in a business-owned or even personal vehicle can get a little murky, and knowing what they need to report when doing so is vital, the report said. Most of the time, they will need to include only the business-specific miles traveled on a trip the date, destination and reason for going on it. This is particularly true when vehicles are used for personal reasons in addition to those related to a business.
Likewise, when it comes to travel for business reasons, owners might not know what they can deduct, the report said. Usually, lodging, transportation costs, and even dry cleaning can all be included and, if the trip is entirely for business purposes, are completely deductible. However, any meals eaten on the trip can only be written off for 50 percent of their value, rather than the full amount.
Large tax burdens can obviously present major problems for businesses operating on narrow margins, and some owners may be able to help themselves by finding more wiggle room in their budget. By reducing costs for small business insurance, including policies for liability insurance, companies may be able to find far more flexibility going forward.