What are tax write offs? In short “tax write-offs” are expenses that you can deduct from your federal tax return.
They say that the only two sure things in life are death and taxes.
Well, it’s also inevitable that, if you do your taxes strategically, you can save a lot of money.
Even if you’re business is profitable, you could easily see that profit diminish after paying taxes.
The matter of taxes can be complicated and could even lead to legal trouble, which is why some people dedicate their careers to studying the ins and outs of the process.
It would be best if you didn’t let the reality of taxes hurt your profits.
There are many ways you can write off expenses so that your business can thrive rather than being weighed down by fees.
So in more detail what are tax write-offs? Let’s explore the five deductions that can save your business money.
1. Deduct Your Health Insurance
When it comes to corporate tax deductions, did you know that you can write off your health insurance if you’re the owner of an S Corp?
Health insurance can be an expensive necessity. As an owner of an S Corp who uses their personal bank account to pay for their premiums, you’re losing out on a potential corporate deduction.
By reporting health insurance under Medical Deductions on the tax form, you would have to meet the deductible before being able to write anything off.
However, if you get your S Corp to reimburse you or if you get your S Corp to pay for the premiums instead of using your bank account, then you can add those premiums to your W-2.
Make sure that it’s listed as income that’s free from any Social Security tax.
Your final step would be to use the self-employed insurance deduction line on your tax form to deduct your premium.
2. Deduct 20% From Your Taxable Income
Another essential item on the LLC tax deductions list is the Qualified Business Income Deduction (QBI Deduction).
This hefty deduction is a product of the 2017 Tax Cuts and Jobs Act, and it can save you a lot of hard-earned money.
This deduction applies to qualified business owners’ taxable income, allowing them to deduct 20 percent from it.
To qualify, you have to own an S Corp, a sole proprietorship, a partnership, or have an LCC that can be taxed as though it were an S corporation or a proprietorship.
After you’ve figured out all the personal expenses and business expenses that you can deduct from your taxable income or net profit, you can then deduct another 20 percent and save even more money than you thought you would.
3. What are Tax Write-Offs: Deduct the Rent of Your Home
Having meetings at your home instead of commuting through traffic to an uncomfortable meeting area might sound great in and of itself, but it can get better.
Your S Corp can have meetings at just about any location, including your own house. To save a lot of money, you can rent your home to your S Corp as a meeting space for 14 days a year.
Not only is this tax-free income, but your S Corp can also deduct the expenses related to renting.
However, there are some provisions that you should be aware of. For example, you can’t provide entertainment at the meeting in your home because that would make the meeting place similar to an ‘entertainment venue,’ which is a different situation.
To be safe, you should document each meeting in detail, including making copies of your training materials and having your employees sign an attendance sheet.
You should also make sure that you can prove that the rent you’re charging is sensible regarding the region you’re located in.
Your S Corp should give you a 1099 that documents the cost of the rent, and then you can use Schedule E on your personal income tax form to report it.
4. Deduct Your Vehicle Expenses
Most vehicles don’t come cheap, which is why you should deduct as many expenses related to your car as possible.
You must maintain a meticulous log that lists your mileage every day and where you drove your vehicle. Keeping this log throughout the week can be a nuisance, but there are exceptions that the IRS offers.
If you track the same week every month for an entire year, then that is considered valid, for instance.
As of 2020, the standard mile deduction for each mile related to business use is 57.5 cents, which is a half-cent reduction from last year.
Considering this number, if you drive 1,000 miles that are related to your business, then that means you’ll be able to write off 575 dollars.
5. Deduct the Cost of Professional Services
The complications of running a business can be too much for even the most knowledgeable person. That’s why it’s important to have relevant experts on your advisory board, such as a CPA and a tax attorney.
What’s great about hiring these professionals is that not only do you get the expertise you need, but you can also deduct professional services fees from your taxes.
This one of the best corporate write-offs you can take advantage of because you get to save money while also capitalizing on valuable information.
As the saying goes, knowledge is power.
What Are Tax Write-Offs? Now You Know
Now, when someone asks you, “What are tax write-offs?” you can tell them about five deductions that can save their business money. You can also use these tips to save big when the next tax season rolls around.
Instead of navigating the maze of taxes by yourself, you can have the Silver Tax Group make sure that you’re on the right path. Our knowledgeable experts will do their best to take care of any legal snag you might come across in the process of taxes.
From audit defense and emergency tax services to unfiled tax returns and criminal tax defense, our tax attornies can provide all the help you need to make it through any tax-related legal trouble.
If you have any questions, feel free to contact us. We’re always happy to help.