14 Biggest Tax Write Offs for Small Businesses! [What the Top 1% Write-Off]

Every year, more than 2 million taxpayers overpay on their income taxes and this is not just pocket change: taxpayers are overpaying closer to 1 billion. Now this could be due to poor tax planning or missing out on some of the

biggest

business. tax

write

-

offs

, meanwhile, the top one percent are using the tax law to their advantage to minimize their tax liability, often leaving us clueless, wait, how am I paying more taxes than them when they make millions of dollars more than me? as a certified public accountant who have I recognized? a common pattern among

small

businesses

and the self-employed: they are paying too much tax and some of them are not receiving some of the larger tax

write

-

offs

.

Hello, my name is Sherman with Life Accounting, a full-service accounting firm helping

small

businesses

. grow and manage your finances in this episode. I will give you the largest tax deduction for small businesses. If you can do me a favor by clicking the like button below, if this video helps you in any way and make sure to subscribe. our channel to make sure you don't miss other videos that can help you grow and manage your small business finances. Also, a little disclaimer. The information I provide in this video is for informational purposes only and is not intended to take over. of legal and accounting advice if you want specific accounting advice be sure to contact your attorney or your CPA now that that's out of the way let's get off to a good start so I was motivated to create today's episode after speaking with one of my clients, my client was a small business in the construction industry, he had a fairly successful small business and was generating around seven figures in revenue and he had contractors that he paid to do all the work on the project that he was hired to do, finally Tax time came and it was time. to file your business taxes, it was the first time we filed your taxes, so we asked to see your financial statements and tax returns from previous years once we reviewed them.

I was suddenly shocked that I was leaving so much money on the table, that there were so many things wrong. for one, you declared your total income as income on your previous years tax return, this means you had deducted absolutely nothing on your tax return for example, just to give you perspective if your income was a million dollars and his net income was five. one hundred thousand dollars, then this would have meant that he declared the entire million dollars as his income for all the previous years, so instead of paying like 100,000 in taxes, he paid two hundred thousand dollars in taxes.

I'm sure you can imagine his face when I explained all of this to him unfortunately this was just the beginning of our problem. Remember all the subcontractors I told you he hired to get the job done right. Two problems there: not only did he not deduct these expenses but he paid them in cash and he had virtually no receipts for the transactions he made with them. He did not have W-9 forms for his contractors, which meant they did not receive 1099 forms to even report the income they received, and since they did not report it, my client obviously could not deduct it.

Anyway, this whole situation taught me that many companies are paying too much on their taxes without even realizing it, and while your situation may not be as extreme as this, there may just be one tax write-off you can take out of the episode today to improve your taxes. situation and put more money in your pockets for this reason, I will give you the

biggest

tax deductions to take advantage of, so let's not waste any more time here, let's jump right into this first and foremost,

what

the heck? is a business tax write-off a business tax write-off, also known as tax deductions, are eligible expenses that you can deduct from your income for tax purposes, which brings me to my next point, which is exactly

what

businesses can write off almost all of.

Commertial expenses. that are incurred to operate a business can technically be written off the IRS allows you to write off business expenses that are ordinary and necessary to run your business now ordinary means that it is common and accepted in your industry necessary means that it is useful and appropriate Due to the nature of your business now, of course, the IRS won't make it easy for you. There are rules, exceptions, and exclusions for various types of business write-offs, for example, if you buy really expensive equipment, the IRS may require you to depreciate it. equipment over its useful life rather than writing off the full cost in the year you bought it, but despite the specific rules and semantics, there are still some huge business tax write-offs you can take advantage of when you miss your next tax return. .

Let's go ahead and get started. I'll start with some of the simpler tax write-offs and then graduate to the more advanced tax write-offs as we go here. Number one tax cancellation, initial and organizational expenses for new businesses watching this video, the first tax cancellation you should think about is the business start-up tax cancellation. With this tax write-off you can deduct up to five thousand dollars in startup expenses and five thousand dollars in organizational costs. Startup costs include any amounts paid in connection with setting up your business, organizational costs include the cost of creating your entity, such as legal fees associated with creating a corporation or partnership, for example tax write-off number two , office expenses, technology and supplies, all office tools and technology expenses that you incur to operate your business can be written off.

Office expenses can include things like your computers, pens, notebooks, etc. Your technology expenses can include things like your accounting software, like Quickbooks or your business account to collect payments from your clients, any tools or technology. that is ordinary and necessary to operate your business can and probably should be written off tax write-off number three home office deduction if you use part of your home for your business then you will probably be able to deduct expenses for the business use of your home, so your home mortgage, interest insurance, utilities, wi-fi repairs and depreciation are things you can deduct for your business as long as you are using your home for business now, to be able to do this , you will need to calculate the portion of your home that is used for business and the portion that is used for personal use, the IRS will only allow you to write off the portion of your home expenses that is allocated for business use, for example, if you live in If you have a 1,000 square foot house and your office takes up 250 square feet, then hypothetically you can write off 25 of all your home costs on your business tax return, tax write off number four, cell phone expenses and phone services cell phone, if you use your personal cell phone for business purposes then you can also use this as a tax write-off.

You can write off both the cost of your cell phone and the cost of your cell phone service and the tax year in which you incurred those expenses. This will work the same way I described with commercial use. of your home, you would have to calculate the portion of your cell phone expenses that is used for business use versus personal use, then you can write off all expenses related to business cell phone use, tax write-off number five, cost of goods sold, if you sell products, then you can also deduct the cost of goods sold. You can deduct the cost of selling products or the storage costs of raw materials.

Direct labor and factory overhead costs, for example, if you sell coffee cups, you can deduct the cost of each coffee cup you sell. From number six, all labor costs, this is very important for all businesses, especially service based businesses, you can and probably should deduct all costs you incur to pay someone to provide a service that is specific to you. your business, this includes both employees and contractors, make sure you have w-4 forms for all of your employees, so you can deduct their w-2 wages from your business income and also make sure you have w-4 forms. 9 of all the contractors you hire to do anything for your business, even if it's as simple as hiring a moving contractor to help you move into a new office space.

This is something you should write off from your business taxes; you just need to keep up with these expenses and issue 1099 forms to your contractors so they too can recognize the income you are deducting from your business tax return, tax write-off number seven, business awareness, this is something that many business owners they neglect and ultimately end up leaving money on the table for the IRS. You can deduct money from your taxes for every single mile you drive for business use, for example, in 2020 you could deduct more than 50 cents per mile you drove for business use. Now the key to deducing business mileage is to differentiate it from your personal mileage.

Your business knowledge can be deducted for things like client meetings. business conferences and any other business reason, however, does not include knowledge used for personal reasons, regardless of whether you simply track your business mileage, you can write off more tax dollars than the IRS would receive from your tax write-off number eight. Business trips You can deduct all of your business travel expenses, for example, let's say you travel to Grand Cayman Island for a five-day business conference, but decide to stay there for a total of 10 days to also combine some personal vacation on the island. In this case, you can deduct all flight expenses to and from Grand Cayman Island and five days of accommodation expenses incurred during the business conference; however, you will not be able to cancel any of your expenses during the other five days that you use for personal purposes. enjoy business tax write-off number nine business meals business meals can also be written off from your business income you can write off 50 of your business meals from your income, however, you also need to understand how the IRS classifies meals business because you simply can't Don't write off all your personal meals and claim them as business tax deductions.

You can deduct meals that are considered ordinary and necessary for the operation of your business, for example, business meals with your clients or employees can be written off. Number 10 Business Interest Expenses If your business has any debt, then you can also write off business interest expenses on that debt. Now many people I talk to confuse this with the full payment you make to your debtors, they cannot cancel your entire monthly payment because part of that payment is for your own principles, however, you can cancel the full part that the bank earns on issue that debt, which in this case is an interest expense.

Okay, now let's move on to some of the more advanced tax writing. -offs which are also things you should probably plan ahead to take advantage of, so let's get to it. business tax write off number 11 retirement contributions, you can also write off contributions to qualified retirement accounts, like traditional iras, if you have employees and offer 401k plans. You can also cancel any contributions you make to your retirement accounts. There are now many different types of retirement accounts. Contribution limits and income limits may determine your overall tax approach to this. However, when planned carefully. You can write off a fair amount of your tax liability and keep more money in your account. tax write-off number 12 health savings contributions Health savings accounts are another great tax write-off that can be helpful for your business.

You can establish health savings. Accounts that are basically accounts that are used for health-related expenses. The best thing about health savings accounts is that your contributions to them qualify as tax deductions and, as long as you use the account for health-related expenses, you will effectively avoid paying taxes on this amount pooled, as you are likely to Everyone has health-related expenses at some point in their life. Setting up an HSA is a win-win scenario for tax purposes. Business tax cancellation number 13. Self-employment tax cancellation. Now, this is an advanced tax write-off. -off and technically it's not really a tax write-off, but since it got to this part of the episode, then it deserves this advice, sinceIf your business income increases, you technically have to pay self-employment taxes on those earnings up to about 130,000 in At the time of this video, if you earn around this range or more, then you can possibly reduce your employment taxes by self-employment simply by joining an S corporation.

Shareholders of S corporations do not pay self-employment taxes, but you must pay them. earn a reasonable salary based on the services you provide to your business, which are subject to taxes related to the self-employment tax; However, if your reasonable salary is less than a thousand dollars, then you will probably save more on self-employment taxes as a result of this change. To learn more about this, then watch our video on pass-through tax deduction number 14 llc versus s-corps when the tax cuts and jobs act was passed, a new deduction comes out called the qualified business income deduction, it basically allows business owners to write off up to 20 percent of their business income on their taxes, for which, for example, if you earned one hundred thousand dollars in business income, you could hypothetically write off twenty thousand dollars and save taxes on the now smaller amount of business income you would report now.

There are a few key rules to keep in mind if you want to use this business tax deduction, for example, it only applies to specific entity types and there are income limits for those who can take advantage of it regardless of whether you are eligible for this deduction. Then it can save you thousands of dollars in income taxes depending on your income. These are my 14 biggest tax write-offs for small businesses. Now let's talk about how to implement this. To implement all this, you need to have good accounting. system in place that tracks these types of expenses and aggregates the totals for each category for you and if you need help with any of this, then our accounting service was designed to help you prepare financial reports like this so you can easily prepare your taxes.

Additionally, if you have any questions about the tax aspect, you can also use our tax planning service to receive a customized tax plan for your business. With all that being said, let's go ahead and recap today's episode, today we discuss a few things first, we define what tax write-offs are first of all, remember that tax write-offs are just eligible expenses that you can use to deduct from your income. business when filing the return. Your business taxes We then look at the general things you can deduct In general, you can deduct almost all business expenses that are both ordinary and necessary to run your business.

Finally, I provided some of the largest business tax write-offs I have ever seen. Customers a ton of money remember to make the most of these business tax write-offs, you need to have a solid accounting system that tracks these things consistently anyway, that's it for today's episode. I really hope you enjoyed the content of this episode, if you did please help me by clicking the Like button below and don't forget to subscribe to our channel so you don't miss out on future content that can help you grow your business. I will speak to you soon