Car and Truck Expenses
The majority of businesses use motor vehicles of some kind, such as vans, small or large trucks, or automobiles. If you have records that prove business usage, the cost of operating such vehicles is deductible. Whether your company’s vehicles are leased or owned, the standard mileage rate can be used for your deduction, which is $.58 per mile, as of 2019.
Wages and Salaries
Payments to employees, commissions, bonuses, and standard wages and salaries are deductible expenses for your business. In addition, taxable fringe benefits are also included in this category. Not surprisingly, however, payments to LLC members, partners, and sole proprietors do not qualify as wages, and therefore are not deductible business expenses. This is because such individuals are owners, rather than employees.
If you are like many business owners, you may use independent contractors or freelancers on a regular basis to meet your labor needs. These expenditures are deductible, although you must be sure to issue Form 1099-MISC to all freelancers and contractors who help you out if they were paid over $600 for the year. If you pay such individuals through PayPal or via a credit card, the processor is responsible for issuing a Form 1099-K. Nevertheless, for your own personal protection, you may opt to send out your own 1099-MISC to your contractors.
Cost of Utilities
Electricity for the facility you work out of is a fully deductible expense. Mobile phone charges are also included in utility costs. If you work from a home office, your primary landline is not deductible. However, if you have installed a second landline solely for business purposes, it becomes a deductible utility cost.
Monies spent on general maintenance and repairs are fully deductible as well, but money spent to increase the value of the commercial property is typically capitalized and must be recovered through depreciation. Fortunately, various safe harbor rules exist that provide a way to take an immediate deduction in this category.
You can also deduct taxes on property and real estate, regulatory fees, and the cost of licenses. Your employer taxes–including state unemployment taxes, FUTA, and FICA–are fully deductible as well. It is important to understand, however, that if you are a self-employed business owner, the deduction for 50% of your self-employment tax cannot be used as a deduction for your business. Rather, it is simply a gross income adjustment on your personal tax return.
Your business owner’s policy, business continuation insurance, cyber liability coverage, flood insurance and malpractice coverage are all fully deductible.
Rent on Business Property
The cost of renting space is deductible also, regardless of the type of structure you rent, such as factories, storefronts, boutiques or offices.
Depending on your personal circumstances, there may be additional deductions available for your company. A tax attorney can offer more information about the best deductions for your business and ways to reduce your tax burden.
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