Small businesses are thriving in the current economic environment. They currently make up 99.9 percent of all U.S. businesses and employ nearly 50 percent of the nation’s workforce.
Even more encouraging is that 53 percent of small businesses plan to grow. Small businesses are flush with cash thanks to savings from the Tax Cuts and Job Act (TCJA).
There are many tax write-offs that you should know about. Deducting business expenses is a great way to reduce your company’s tax liability. Read on to explore 5 business deductions that are certain to improve the bottom line.
1. Qualified Business Income
Perhaps the most impactful new provision in the TCJA is the qualified business income. This is a new deduction that did not exist prior to the TCJA passage.
Now, small business owners can deduct qualified business income of pass-through entities. The deduction is up to 20 percent of qualified business income.
2. Payroll Deductions
Salaries and wages represent one of the largest business expenses. The good news is that they are deductible under the U.S. tax code.
Payroll deductions also include items like commissions and bonuses. Additionally, indirect labor costs such as fringe benefits are deductible as well.
3. Depreciating Business Assets
This is a favorable change for small business owners due to the new tax law. Small businesses often purchase real estate, equipment, and other depreciating assets.
This provision of the TCJA was designed to spur business investment. It allows 100 percent expensing of depreciating assets.
The only limitation is the year in which the assets were purchased and when they were put into service. The applicable time period is September 27th, 2017 to January 1st, 2023.
The depreciating business interest deduction expires in 2027. Starting in 2022, the 100 percent allowance decreases by 20 percent each year.
4. Home Office
A growing number of Americans are working from home. Advancements in technology allow consultants and service companies alike to operate with mobile devices.
Therefore, the popularity of the home office deduction should come as no surprise. Here, small businesses can deduct expenses like electricity, internet, and phone. It is important to remember that the home office deduction is only for spaces devoted to the business.
5. Property Ownership
There are many amazing items to deduct as it pertains to property ownership. For starters, property taxes are a major deduction for a commercial property.
In addition, you can write off mortgage interest as well. Property taxes and mortgage interest are sizable deductions.
Other deductions include property and flood insurance. If you do not own the property, rent is fully deductible as well.
A Recap of Tax Write-Offs
This is just a small sample of important tax write-offs. There are many others like meals and supplies.
Deducting major expenses like depreciating assets and payroll have a major impact on your tax liability. Maximizing your company’s write-offs is a must in order to boost profit. If you need help with tax write-offs, please contact us for assistance today.