In these challenging times, every penny saved counts when it comes to your taxes. 90% of business owners overpay their taxes because they are unaware of how much they can write off on their taxes. In fact, most business owners don’t even know the significance of tax deductions, resulting in millions in overpaid taxes.
As a business owner, you have myriads of opportunities to save tax money with a lot of business-related tax deductions. So, what can you do about this? Let’s dive into the world of tax deductions to help you avoid leaving tax money on the table ever again!
What Is A Tax Deduction?
A tax deduction reduces your tax liability, leading to a lower tax bill. After calculating your total gross income for the year, you can deduct certain eligible adjustments to your income, such as contributions to a retirement account, student loan interest payments, self-employment health insurance payments, and more. These adjustments to your income, also called above-the-line tax deductions, reduce your gross income to reach your Adjusted Gross Income (AGI), which the IRS generally uses to determine your taxable income.
Essentially, a tax deduction for your business means any ordinary and necessary expenses incurred to carry out any business or trade. You can deduct eligible business expenses from the business income reported on your tax return, leading to a lower tax bill.
If you want to lower your tax bill this tax season, it’s time to strap your boots and maximize your tax opportunities. Here are the top 10 tax deductions you can claim in 2024.
- Standard Deduction
Standard deduction allows you to shelter some of your income from federal income tax. A standard deduction generally increases annually due to inflation. You can either claim the itemized or standard deductions. The amount you get for your standard deduction depends on your filing status, age, and other factors. For example, standard deductions for filing in 2023 were:
- Single or married filing separately: $13,850
- Head of household: $20,800
- Married filing jointly: $27,700
On the other hand, the standard deduction for 2024 increased to:
- Single or married filing separately: $14,600
- Head of household: $21,200
- Married filing jointly: $29,200
- Work-Related Travel Expenses
Did you know? All expenses related to your business travel can be written off during tax time, including airfare, meals, rental car expenses, dry cleaning, and more. However, to qualify as work-related travel, your trip must meet these conditions:
- The trip must be necessary for your business
- The trip takes you away from your tax home(the city or area in which your company conducts business)
- You must be traveling away from your tax home longer than a normal day, and you’re required to rest or sleep en route.
- Business Insurance
You can deduct the cost of your business insurance on your tax return. If you use a portion of your home for your business or own a home office, you can deduct the cost of your renter’s insurance as your home office write-offs.
- IRA Contributions
If you are tax savvy and plan to retire with financial stability, consider making contributions to a traditional retirement account or IRA. You can also deduct these contributions from your gross income, consequently reducing your retirement investment tax rates. With these tax-deferred accounts, you’re not required to pay tax on the contributions, dividends, interest, or any other gains earned on the account until the money is withdrawn.
However, for a Roth IRA, the reverse is the case, as it doesn’t require you to pay taxes on the contributions you made or any gains you realize in the account when you eventually withdraw the money in retirement.
- Health Saving Account (HSA) Deduction
A Health Savings Account is meant for pre-taxed money saved for your medical expenses. However, to qualify for an HSA, you need a high deductible health care plan. HSA offers excellent benefits, such as being tax deductible and not subject to federal income taxes when used for qualifying medical expenses. Some HSA accounts also allow you to invest your contributions and earn tax-free interest on the balance.
The contribution limit for 2023 is $3,850 for singles or $7,750 for families. In 2024, the contribution limit will increase to $4,150 for singles and $8,300 for families. If you’re over 55, you can also contribute an additional $1,000.
- Office Supplies
As a business owner, you can also write off your office supplies such as pens, paper, computers, printers, and other work-related software you use for business purposes within the year you purchased them. You can also deduct work-related shipping and postage costs. To make the most of this deduction opportunity, ensure you file and document all receipts for office supply purchases.
- Business Interests And Bank Rate
Cash is king for any successful business, and that’s why we have the banks. Did you know you can deduct your bank interest from business loans and business credit cards from your taxes? You can also write off fees and additional charges on your credit card and business bank accounts, such as monthly service fees and annual credit card fees.
- Charitable Contributions Tax Deduction
If you’ve made either cash or non-cash charitable donations to a 501(c)(3) organization, your contribution may be tax deductible. You’ll need to itemize your tax deductions to claim this charitable contributions deduction. Although you can’t deduct the value of your time when you volunteer, you can deduct your cash and non-cash donations and up to 14 cents per mile driven for your volunteer work, your parking, and toll payments.
- Student Loan Interest Deduction
You can deduct a portion of the interest you pay as a tax deduction when you pay interest on a qualified student loan. However, your tax deduction is limited to the amount of interest you paid or interest up to $2500 (whichever is less). Because a student loan interest counts as an above-the-line deduction or an adjustment to income, you may be eligible to claim the deduction without needing to itemize if you meet specific deduction criteria.
- Professional Service Fees
If you use any professional service for business purposes, such as legal accounting, bookkeeping, and accounting services, you are eligible to deduct the expense from your taxes.
Take Home
Tax deductions work by reducing your taxable income to cut down your tax bill, but there are traps you have to avoid to protect you from getting into trouble with the IRS. To discover how to claim the most tax deduction possible, reach out to a tax professional like Tax Goddess to help you explore all the tax deductions available. Want to cut down your taxes and achieve financial security? Book a free consultation with the Tax Goddess team today!
