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How to Make the Most of Small Business Tax Deductions in 2020

Managing finances is a critical function of small business management, and with the arrival of tax season, now is the perfect time for small business managers to review potential tax deductions for 2020.

By making deductions, you can reduce your taxable small business profit — meaning, you’ll owe less in business taxes. This can help you maximize your business profits to set your company up for success in the new year.

But what deductions can you make?

Let’s take a look at some of the most common small business deductions you could make in 2020.

Tips for Making Small Business Deductions

Before we take a look at some common small business deductions, make sure to keep these tax tips in mind to avoid making unqualifying deductions.

Make Common Deductions

As a general rule of thumb, small business tax deductions should be common and necessary — meaning, businesses like yours should be making similar deductions.

Essentially, all this means is that it’s important to be reasonable when making deductions. For example, freelancers often deduct home office expenses since they work from home. However, if you run a small business with an office space, you probably shouldn’t deduct that new desk you bought for your home office.

Keep Accurate Records

Above all else, accurate recordkeeping is a critical aspect of small business management for tax purposes. In some cases, the IRS might want proof of certain expenses, and you need to be able to provide that proof upon request.

Additionally, some expenses only partially qualify for deductions. For example, freelancers who work from home may be able to deduct a percentage of their internet bill as a business expense. However, you’ll need records to back this up if you plan on making this type of deduction.

Common Small Business Tax Deductions

Before you file your next small business tax return, make sure to keep these common small business tax deductions in mind:

  • Vehicle Expenses: If you use your vehicle entirely or partially for business purposes, you may be able to deduct expenses such as gas, depreciation, maintenance or similar costs.
  • Workspace Utilities: Small businesses can deduct any utilities required for their office, factory or workspace. This could include heat, electricity, internet, phone service and more.
  • Rent: Property rental costs can also be deducted. You can also deduct rental fees for equipment, machinery, event spaces and more.
  • Employee Wages, Salaries and Benefits: Generally speaking, any money you pay to your employees, contractors or freelancers can be deducted. Additionally, you may be able to deduct costs related to employee benefits, including healthcare plans and retirement plans.
  • Home Office: If you use your home or a portion of your home exclusively for business, you may be able to deduct certain homeownership costs. Talk to our tax experts for more information on how to calculate this deduction.
  • Taxes: Any federal, foreign, local, or state taxes that you must pay to conduct business might be deductible. This might include property or payroll taxes, for example.
  • Marketing Costs: Advertisements, business cards, and other marketing materials are often deductible. This can even include entertainment and food expenses for promotional events.
  • Interest: Interest paid on business loans, commercial real estate mortgages, and business credit cards is also deductible.

Of course, these aren’t all of the possible deductions your small business may be able to make this year. Part of managing a small business is researching and understanding all of the deductions for your specific situation.

That said, these are some of the most common small business deductions you could make in 2020.

Need Help Maximizing Your Deductions?

Small business management can be very stressful — especially when it comes to filing your taxes.

Fortunately, you don’t have to do this alone. At ATPP, we specialize in offering personal, affordable, and professional accounting and payroll services to small businesses throughout Los Angeles County.

If you need help maximizing your small business deductions in 2020, contact ATPP today to learn how we can help you.