4 valuable tax deductions for business owners

Don’t miss these 4 deductions that will enable you to reduce your business taxes and keep more of your hard-earned money in your pocket!

Deduction #1: Travel deduction

As a business owner, you can deduct many travel expenses such as: travels to customers, vendors, airports, business locations, banks, supply stores and post offices. For tax year 2022, you can also deduct 100% of business-related food and beverages expenses incurred at restaurants. In addition, if you use your personal car for both business and personal needs, you can deduct the business usage costs – either by deducting the actual cost of the business use or by deducting a mileage standard rate (56 cents per miles in tax year 2021).

Deduction #2: Home office deduction

If you are a business owner who works from home, you can deduct the use of the space area  -such as the use of a room, a studio, a garage, or a workshop. The deduction is allowed if the space is:
1/ separately identifiable
2/ used exclusively for work (ie an office-guest room will not quality)
3/ used regularly for business (such as spending one hour each day contacting customers).

Your deduction can either be based on actual cost (the business portion of your utilities, insurance, repairs, financing interest, and property taxes) – or it can be based on a standard rate ($5/ square foot of the home office).

Deduction #3: Depreciation & amortization deduction

When you purchase tangible assets such as buildings, vehicles and machinery for your business,  you are entitled to a depreciation deduction. When you purchase intangible assets such as patents, intellectual property, and Goodwill for your business, you are entitled to an amortization deduction. The amount of the yearly deduction depends on the tax life of the asset. For example, the US tax administration (IRS) considers that a computer has a tax life of 5 years, this means that the cost of a computer would be deducted over 5 years.

In some situations, you can deduct up in the year of the purchase of the asset up to 50% of the asset price (Special allowance) or up to 100% of the asset price (Section 179 depreciation). For more information on depreciation 179: http://www.section179.org/

Deduction #4 - Self-employed deductions

You are considered self-employed if:
•    you own a business that does not exist independently from you and you make all the business decisions and are entitled to 100% of the profits (sole proprietor)
•   OR you carry on a trade that is not incorporated (such as a Single or multiple member LLC)
To know more about other entity structures: https://www.kbfinancials.biz/la-consultation---structures-juridiques.html

As a self-employed owner, you are eligible for many tax deductions including:

1/ A retirement deduction: if you contribute to a SEP or IRA, your earnings accumulate tax free in the account and you can deduct up to $56K (SEP)/ $6K (IRA) of your contributions on your tax return. To know more about other retirement tax benefits:  https://www.kbfinancials.biz/les-comptes-d-investissement-d-fiscalis-s-aux-etats-unis.html

2/ A health insurance deduction: as a self-employed business owner, you can deduct up to 100% of your health insurance premiums.  To know more about health insurance tax benefits:  https://www.kbfinancials.biz/tax-benefits-for-your-medical-expenses.html

3/ A Qualified Business Income deduction (QBI): depending on the nature of your business activity, only 80% of your business income will be taxable. To know more about QBI: https://www.irs.gov/newsroom/qualified-business-income-deduction

Important: keep records to substantiate your deductions!

For each business trip, you should keep a log / diary that answers the questions “who, what , when, where and why” for each expense. The log should include the date, the destination, the business purpose, the amount of the expense, the business relationship between the taxpayer and the persons and the mileage. To know more about how long to keep a business records:  https://www.kbfinancials.biz/retention-des-documents.html

As always in tax law, there are exceptions to the above rules, so make sure you contact your tax professional Karine Bauer, EA for answers specific to your tax situation.  The views contained in this article are not tax or legal advice and are not a substitute for consulting with a tax professional. Karine Bauer, EA is an IRS Enrolled Agent licensed by the Treasury Department with unlimited rights to represent taxpayers before the Internal Revenue Service. Karine is also a Quickbooks Pro-Advisor and a member of the Association of Chartered and Certified Accountants (ACCA). She is an experienced tax professional with more than 20 years of international experience.

Bear in mind the date of this article as tax laws evolve over time.

Updated on : September 14th, 2022