A lot of businesses are set up in Colorado, and small companies share a significant proportion of it. For most small business owners, managing taxes has always been stressful as it requires keeping track of everything and then preparing and filing accordingly.
A plethora of such small business owners pay more taxes than they should have because they do not apply tax deductions wherever they are applicable. Tax deductions, as well as credits, can significantly reduce the overall tax burden, but it requires the person to have a good knowledge of tax deductions and their eligibility.
Thus, most owners turn to small business accounting Denver to manage taxes and maximize eligible deductions and credits to lower taxable income.
Some Common Small Business Tax Deductions
Numerous tax deductions are available for small business owners to write off based on eligibility, which reduces their taxable income and helps them save significantly on taxes. We shall now look at some standard tax deductions for small businesses from which the owners can benefit.
Work-Related Travel Expenses
All expenses that are related to business travel can be written off at tax time, which includes hotels, airfare, tips, rental car expenses, meals, dry cleaning, and more. To have an idea of all the expenses eligible for tax deductions under work-related travel, you can refer to the IRS website to get a complete list.
To qualify as work-related travel, the trips must meet the following conditions:
The trip must be a necessity for your business.
The trip must take place during a typical working day and include rest or sleep on the way.
The trip must take you outside of your tax home.
Home Office Expenses of Business Owners and Freelancers
Under the new IRS guidelines for home office expenses, a business owner or even freelancers can deduct about 5 dollars per square foot used for business purposes, up to 300 square feet. The condition is that the place must be exclusively used for business and used regularly as the principal place.
Work-Related Use of Car
If someone uses a car strictly for business purposes, the cost of managing and operating can be deducted. However, if someone uses the vehicle for both personal and business use, only the cost of the business usage can be deducted.
One can claim the mileage used for business by deducting the miles traveled for business purposes or going by the standard 0.56 dollars per mile.
Internet and Phone Expenses
For someone, a phone and internet are essential for the business and the expenses can be deducted from the same. But, if someone uses them for both personal and professional purposes, only the professional cost can be deducted.
For instance, if about half the internet is used for business-related work, then 50 percent of the total price can be written off.
Charitable Contributions to Qualifying Organizations
Charitable donations made to qualifying organizations can also be deducted. If the business is a corporation, charitable contributions can be claimed on corporate tax returns. If the company is a sole proprietorship, partnership, or LLC, such expenses can be claimed on personal tax forms.
Exclusion of Foreign-Earned Income
American citizens with businesses set up abroad are allowed to exclude foreign income from their tax returns, but only under certain circumstances. The tax home needs to be based abroad to qualify for the exclusion.
Business Interest and Bank Fees
If someone borrows money to provide funds for business activities, the bank charges interest on the loan. At the time of tax season, the owner can deduct the charged interest on both business credit cards and loans. The owner can write off any additional charges or fees on the credit card or the business bank account.
Feeling Perplexed? A CPA Can Help!
Most people find it challenging to keep financial records and ensure that all eligible tax deductions are applied. A CPA is a professional who possesses the skills and knowledge required to ensure that everything related to taxes is optimal.
