Tax savings
Taxes are an inevitable consequence of doing business, in fact taxes constitute the single greatest expense for many businesses. Nevertheless, the IRS allows businesses to deduct a variety of business expenses from taxable income. The following deductions apply to both business organizations such as corporations and LLCs as well as the self-employed.
Payroll Expenses
Employee remuneration can be deducted from your taxable income. This includes not only wages and salaries but also the cost of employee benefits such as health insurance premiums. It is important, however, to make sure that the IRS will classify your staff as employees and not independent contractors. Consult an attorney when in doubt.
Advertising and Promotion
You may deduct both direct advertising expenses and promotional expenses such as seminars. These expenses must be directly related to your business.
Professional Fees
You may deduct fees for attorneys and accountants from your business's taxable income. These expenses are deductible even if the professional is not an employee of your company. Self-employed individuals may deduct fees paid to tax professionals.
Business Equipment
You may deduct the purchase price for business equipment such as computers, machines, vehicles, furniture and other necessities. The purchase price for real property is not deductible. In addition to your usual business income tax return, you will also have to fill out Form 4562 to take this deduction. This deduction was capped at $112,000 in 2009; however, it varies greatly from year to year.
Business Entertainment
You may deduct up to 50 percent of reasonable business entertainment and meal expenses from your company's taxable income (self-employed persons may deduct 100 percent). It is important that these expenses be reasonable and directly related to your business, because this deduction is often abused.
Business Travel
You may deduct 100 percent of business travel expenses, provided that these expenses were actually incurred and not reimbursed by another party. Eligible expenses include transportation and lodging, but not expenses for accompanying family members. You may also deduct fuel expenses if you or your employee travel by car or truck. Keep receipts and log your expenses in case of an audit.
Taxes
Your company may deduct 100 percent of any amounts paid for state and local taxes as well as taxes paid to any foreign government, provided that these taxes were actually paid during the federal tax year.
Charitable Donations
Corporations may deduct up to 10 percent of their taxable income for charitable donations. Individual owners of pass-through taxation entities such as S corporations, partnerships, LLCs and sole proprietorships may deduct between 30 percent and 50 percent of their adjusted gross income, depending on certain factors. The donation must have been made to qualified charitable, religious, educational, literary and scientific organizations and your business must not have been provided any benefit in exchange for the donation. Donations of goods are deductible, but the value of time or services is not deductible.
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