Starting a business is not only about selling products or services and receiving money in return. Many other tasks are part of an entrepreneur’s job, one of which is paying taxes. Even though filing a tax return online is free, filing returns with the Internal Revenue Service (IRS) is an obligation that many entrepreneurs struggle with. Paying taxes does not mean giving away your money to the government. It is possible to fulfill this responsibility and generate benefits in your favor from expense deductions.
The first thing you should know is that tax contributions make it possible to improve health, education, public works, and justice conditions promote social programs, and contribute to the economic and social development of the country. One of the sectors that also benefit from paying taxes is small businesses, which are served through the Small Business Administration (SBA), the federal agency in charge of supporting entrepreneurs in the United States.
Suppose you have not done tax planning since the establishment of your business or at the beginning of the new fiscal year. In that case, you probably lack the capital to pay taxes. Accessing financial products such as commercial loans or working capital loans are adequate resources to cover the need for financing.
What are business expenses?
75% of small businesses are not considered corporations; therefore, the owner can pay taxes for the economic activity in their tax return. According to information from the SBA, the average payment is 19.8% of the owner’s income from the business, a compelling reason to know your deductible business expenses and favor your economy with the benefits.
Understanding working capital for finances business health
To keep accurate management of your expenses, take care of working capital business management at all times. In this way, the business owner will have certainty and clarity about the capital he must pay for his short-term commitments. In addition, they will have clear information about expenses, which makes tax deductions much easier.
Types of business expenses
According to the IRS definition, business expenses are the cost of carrying on a trade or business. Deductible business expenses are divided into two categories:
- Ordinary expenses: are those that are common in business, such as operating expenses.
- Necessary expenses are considered valuable and appropriate for the business but are not indispensable to its survival.
What expenses are deductible for your business
The expenses that a small business can deduct are:
- Some business startup costs, business assets, and improvements: Refer to Chapters 7 and 8, IRS Publication 535 ‘Business Expenses’ for specifics in this category.
- Personal expenses that are used for business: In this case, if some expenses are used partly for business and partly for personal reasons, a proper division will have to be made, and the proportional part of the business can be deducted.
- Business use of your home: if the home is used for business purposes, expenses such as mortgage interest, insurance payments, repairs, and depreciation can be deducted.
- Use of the owner’s vehicle for the business: Expenses such as gasoline, repairs, and depreciation can be deducted.
- Employees’ Pay: If the company has employees, it is possible to deduct the expense incurred for salaries.
- Retirement Plans: this expense may be deducted for employee retirement or the business owner’s retirement.
- Rent Expense: This expense can be included in the deductions if the business owner does not own the property. It cannot be used if capital is received for the property.
- Interest: Interest may be deducted if any financing product is requested for the business, such as a working capital loan or any commercial loans and credits.
- Insurance: The costs of contracting insurance for the company are deductible.
- Taxes: The payment of federal, state, local, or foreign taxes may be included in the expenses to be deducted.
Compliance with tax returns allows you to access benefits such as grants or loans granted by the SBA. Suppose you do not have the necessary capital to pay your obligations. In that case, you can resort to a working capital loan or small business loans to catch up. Take into consideration the business expenses that are deductible and will allow you to maintain a reasonable tax status.
