Top 7 Small Business Tax Deductions To Keep In Mind For 2024

Tax season has already started in January. Take advantage of the tax deductions available to help lower your taxable income and decrease your tax obligations. This blog post will cover the top 7 small business tax deductions to remember as you do your taxes this 2024.

Note that these deductions are based on current tax laws and may change. Thus, consulting with a reliable accounting firm such as Cloud Friday. 

1. Business Expenses

Business expenses are the most basic expenses that are incurred by any business. They include spending necessary to sustain the company’s everyday operation, such as rent, utilities, supplies, insurance, etc.

2. Vehicle Expenses

Maintaining and operating your vehicle may be considered a vehicle expense for your business. The two options to calculate this deduction:

  1. Actual Expense Method – In this procedure, all vehicle expenses are recorded and divided by the miles it was driven, then multiplied by the actual miles consumed for doing business.
      
  2. Standard Mileage Rate – The IRS has announced that the standard mileage rate for 2024 is 67 cents per mile, which has gone up by 1.5 cents from 2023. Under this method, expenses covered include gas, oil, repairs, insurance, and depreciation. In this method, multiply the recorded vehicle usage in miles by 67 cents to determine the vehicle expense deduction. 

The IRS reminds us that if the vehicle is leased, the computation for vehicle expenses must be the standard mileage rate.

3. Use of Home Office Deduction

When you use a portion of your home regularly and exclusively as your principal place of business, you may be eligible for a home office deduction. This includes both owned and rented houses. Some of your home expenses, such as mortgage interest, property taxes, utilities, repairs, and maintenance, may qualify as deductions. There are two options to compute this expense:

  1. Simplified Method – In this option, you may deduct $5 per square foot used as an office area, with a maximum of 300 square feet. 
  2. Regular Method – In this option, all home expenses are compiled and then multiplied by the percentage of the home used for business.

4. Depreciation

Depreciation is the decrease in the value of a fixed asset over time. Companies may claim this deduction against leased or purchased property, equipment, vehicle, etc., to recover some of its cost over its useful life.

There are different ways to compute depreciation depending on its classification. The simplest one is straight-line depreciation, and here is a calculator to help you.

5. Section 179 Deduction

Section 179 deduction is a special type of deduction that allows a business to claim the full amount of a leased or purchased tangible asset in the year it was put to use.

It is best to consult an accountant, such as Cloud Friday, to determine if you could qualify for the Section 179 deduction and if it will benefit your company.

6. Employee Benefits

When you offer employee benefits, such as health insurance, retirement plans, and educational assistance, your company may deduct these as employee benefit deductions. There are, however, several regulations to be met, such as:

  1. Eligibility – Generally, you must offer the benefit to all eligible employees on a nondiscriminatory basis.
  2. Reporting – You need to report the value of the benefit on your employees’ W-2 forms.

Ask your trusted accountant so you can take advantage of this deduction.

7. Professional Fees

Professional fees paid to service providers throughout business operations, such as business consultants, accounting firms, and lawyers, may qualify as tax deductions. However, if the services are associated with launching or acquiring a company, you might need to amortize the costs over several years.

Final Thoughts

Paying taxes is a necessary expense of doing business. However, some tax deductions, such as those mentioned here, can reduce your taxable income and save you some cash.

Be reminded, however, that tax laws are often updated, and these small business tax deductions are subject to change. Thus, it is best to hire an accounting firm, such as Cloud Friday, who keeps abreast of these changes. They can give you sound financial advice and make sure you comply with tax regulations.

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