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Tax Deductions Small Businesses May be Missing Out on

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Given that a large number of American businesses fall under the “small business” category, it’s conceivable that many businesses are preparing their federal income tax returns with their personal tax returns. Sole proprietorships claim income and losses from their business on their personal returns, as do any “pass-through” entities like S corporations, LLCs, or partnerships.

If you’re running a small business, there’s a chance you are missing out on a number of tax deductions. Some of these include:

Self-Employment Tax

Wages are subject to FICA tax, which is comprised of Medicare and Social Security taxes. When you’re employed by someone else, these are deducted right from your payroll. However, when you are self-employed, you are responsible for both the employer and employee portion yourself. Fortunately, there is deduction for the equivalent of what an employer would pay.

Health Insurance

You may have a deduction for health insurance, including Medicare premiums, that you pay for yourself, along with spouse and dependents. To qualify, you must show a net profit for the year on your Schedule C, C-EZ, or F, and the insurance plan has to be under your business. If you qualify, you can deduct the premiums on your tax returns.

Business Insurance

If you have business-related insurance, like malpractice insurance, general liability, workers compensation, or errors and omissions insurance, you may be able to deduct premiums. You can also deduct premiums for insurance used to cover your business location in the event of theft, fire, storm, etc.

Vehicle Expenses

You may be able to deduct a portion of your vehicle expenses, including the lease payment, provided you use the vehicle exclusively for your business. Most people split the vehicle between business and personal use, which means you can only claim the portion attributed to work. You’ll need to keep detailed records, especially if you plan to claim parking, gas, repairs, mileage, etc.

Promotion and Advertising Costs

Businesses have the right to deduct expenses for getting the word out, which can include traditional print advertising like a newspaper or magazine, but also business cards. In many cases, you can also deduct the costs associated with preparing your advertising, like graphic design, website costs, hosting fees, and more.

Home Office

If you work from home, you may have a deduction for your office. However, this deduction is often misused, leading to IRS audits. To deduct any home expenses, the portion attributable to the business must be exclusively used for work and be your principal place of business. Maybe you meet clients there, see patients, or manufacture products. It must be a separate office, not just the spot in your home where you find it convenient to work.

Legal Fees and Other Service Fees

It’s important to have a Washington DC small business attorney you can trust. You may assume that a small business doesn’t require legal services, but small businesses are the ones who often run afoul of employment laws and other statutes. Fortunately, your legal fees, along with other important service fees, are deductible. These can be for a tax accountant, payroll services, and consultants for example.

There are a number of other deductions a small business is eligible for. The attorneys at Tobin O’Connor & Ewing have experience handling a variety of small business needs, including new business set up, compliance issues, and tax planning. Contact our office at 202-362-5900 to set up a consultation.

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