In order to generate income, you have to spend money . However, federal tax laws can offer some relief from the pain of company expenses .There are common business write-offs that can lower taxable income and reduce your company’s tax obligation on April 15. Overall, the expenses that are written off by a business usually have to be standard in that particular industry and essential to the business operations. In addition, maintain comprehensive records to show that the spending went into your operations and talk to an accountant to learn about exceptions that may be applicable to your situation.
You may deduct practically any office supplies and equipment that are needed by your business, including paper, software, printers, filing cabinets, desks and copiers. When it comes to large items such as furniture, you can select the mode of deduction. There are businesses that write off the full buying price in the year of purchase. Others depreciate furniture over seven years or equipment over five years. The depreciation period for software is three years. In case of furniture and equipment that started being used in 2012 and 2013, you can deduct costs of up to $500,000. In 2014, the write-off is slated to fall to $25,000.A business that is capitalized using credit benefits from an additional write-off –it is allowed to deduct carrying charges and interest.
A lot of the costs incurred when doing business are tax deductible. The fees that a company pays to consultants, attorneys and accountants can be exempted provided the services paid for pertain to the business of the current year. Abusiness may also write-off promotional costs such as sponsorships, business cards and phone-book ads. In addition, a company is not required to pay taxes on the income that was used for theft and casualty coverage, malpractice or liability insurance, business-interruption coverage and insurance paid to cover unpaid debts. Furthermore, bad debts are write-offs provided a tangible good was sold, not services. Other taxes such as commercial real estate levies and employment taxes are also tax deductible.
Labor is the largest expense for the majority of companies. But a number of write-offs can give some relief from these costs. A company can deduct worker compensation including bonuses, wages and gifts as well as benefits like vacation pay and health insurance. Companies that assist workers with group term insurance and adoption assistance also get write-offs for these services. Federal law also gives tax incentives for putting aside money for employee retirement plans. A company can deduct owners and employee contributions using a Savings Incentive Match Plan for Employees or a Simplified Employee Pension plan. It is also possible to deduct the administration fees for the plans in case the charges are not covered by contributions.
Rent can be the next biggest cost after labor. A company is allowed to write off the rent expenses for the current year provided the owners do not have(and will not receive)title or equity in the office space. There is also a tax write off if the business is home-based. To be eligible, the space should only be used for business purposes. This means you cannot claim a write-off if your dining area serves both as the family eating point and your home office. But the space dedicated for your business need not be an entire room-a corner of the study is adequate. To find out the amount to write-off, measure your working area and divide this by your home’s total square footage. The percentage you get is the portion of home utility and payment costs that you may deduct.
Other lesser-known costs
Do not overlook the many little-known expenses that a business can deduct. Videotapes, books and audiotapes that help to enhance business skills are tax deductible, and so too are bank service charges. A business that becomes a member of a chamber of commerce and participates in trade fairs can write off the registration fees and membership dues. The cost of providing beverages to workers is deductible. Other expenses that a business can write off include regulatory expenses, business license costs, employee outplacement services and fines or penalties for contractual nonperformance or late performance.