A Beginner’s Guide to Small Business Tax Deductions

A Beginner’s Guide to Small Business Tax Deductions

Which Brings Us to Tax Deductions?

Tax deductibles help in reducing the tax burdens of the small companies. It helps the companies in the early stage of the running. Saving the money can be a huge confidence boost for the new companies. It is the reason behind considering the tax strategy as a key for the companies. Cash-based taxpayers have the flexibility to determine the timing of the income and expense for each of the calendar year. While accumulation basis taxpayers can accelerate expense and defer their income.

What Small Business Expenses Are Deductible?

It is probably one of the most important things that all the business owners want to know. Before the small business will claim for a deduction for a particular expense one must know that the tax law says that only those expenses which are necessary to run the business comes under the list of deductions. Further, a small business must keep the personal expenses and business expenses separate to claim the deduction.

According to the IRS's website, there is 92tax deduction that a small business can claim.

What You Need in Order To Take Deductions?

1. A Bookkeeping System

Often small businesses used to avoid this but it is really important, especially when it comes to tracking the incomes and the expenses. To file the tax return, you need to have a properly updated balance sheet and the income statement. These all you can get only by keeping a perfect bookkeeping system. Balance sheet keeps the record of buying, selling, or disposing of capital assets that year.

2. Receipts & Records Documenting Expenses Keeping the records is key to tax filing for any business. No matter you store these records digitally or you are using the still same old methods, you should keep the records for sure. No doubt, that your accountant and CPA will surely thank you for such a great maintained record. In the case of missing records, your claim for deduction will not be viable. It is best to hire tax services for these works.

3. Certain Expenses Require Specific Records Only keeping the receipts will not matter in all the cases. In some special cases, you need specific records to claim the deduction for your business. Suppose you have used your car for a business purpose.

You need to keep entire details of the user to claim the deduction. It will be better to keep a separate log for the business and personal use of the car.

Tax Deductions vs. Tax Credits Apart from the general deductions, there are some set of activities that a business needs to perform and these are qualified for the tax credits that provide a dollar-fordollar reduction in tax liability. Tax deductions lower your tax liability by reducing your taxable incomes. There is the corresponding form that you can use for the tax credits. Often the tax credits give more benefit than a tax deduction.

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