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Writing Off Taxes And Licenses As A Business Deduction

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Writing Off Taxes And Licenses As A Business Deduction

Licenses – they might not be the most exciting part of starting a business, but they're like the ticket to the show. Whether you're planning to open a cozy bistro or embark on a daycare adventure, you've got to have those licenses in hand to keep things legal and running smoothly. But here's the silver lining– these necessary licenses and permits can often give you a little break come tax time. It's one of the many business tax expenses categories for small businesses that can help lower self-employment taxes. Keep on reading, and we’ll break down questions like can you write off business expenses without an LLC, are professional license fees tax deductible, are licensing fees tax deductible and are registration fees tax deductible.

Table of contents

Key takeaways...Read more

Who can deduct taxes and license expenses?...Read more

Can you write off business expenses without an LLC?...Read more

What are the deductible taxes and licenses expenses?...Read more

Licenses and regulatory fees...Read more

State unemployment insurance fund or disability benefit fund...Read more

State and local sales taxes imposed on you as the seller of goods or services...Read more

Real estate and personal property taxes on business assets...Read more

Social Security and Medicare taxes...Read more

Federal unemployment tax...Read more

Federal highway use tax...Read more

Key takeaways

  • W-2 employees can no longer deduct license fees as an income tax deduction.
  • Taxes and licenses are deductible for self-employed individuals running their own businesses.
  • Report taxes and license costs on Line 23, Schedule C.

Who can deduct taxes and license expenses?

W-2 employees used to be able to claim license fees as an income tax deduction, but that was scrapped after the 2017 Tax Cuts and Jobs Act (TJCA). Self-employed individuals, whether they run sole proprietorships, partnerships, LLCs or corporations, can deduct license costs as business expenses from their taxes. However, these deductions have to be considered ordinary and necessary expenses for the operation of the business. Say you operate an LLC that provides IT consulting services. To operate legally in your industry, your consultants must obtain and renew certain professional certifications. These certifications often require fees and licenses to be maintained. One of your key consultants has a certification that requires her to pay an annual fee to maintain it, and she also needs to attend an annual training course to stay up-to-date with the latest technology trends. These expenses are vital for your operations, as she brings in a lot of clients. So, you can deduct these certification and training fees as an LLC business deduction. These fees are directly related to enhancing your consultant's skills and ensuring that your company can continue offering high-quality IT consulting services to your clients. By deducting these license fees, you can reduce your taxable income, which, in turn, lowers estimated tax liability.
 Infographic entitled What Can An LLC Write Off listing business deductions for an LLC.
If you use FlyFin, you won’t need to look at another tax-deductible business expenses list, as A.I. finds all the deductions you can write off. You can also get unlimited tax help from CPAs who can answer questions like are licensing fees tax deductible and are professional license fees tax deductible, while filing your returns with 100% accuracy.

Can you write off business expenses without an LLC?

What if you don’t have an LLC? Can you still write off taxes and licenses on Schedule C? Absolutely! Any self-employed individual can write off business expenses from their taxes. Most expenses that are LLC business deductions can also be regular 1099 tax deductions as long as they are essential to running your business. You can refer to Publication 535, which outlines the most common expenses that self-employed individuals can write off. It’s probably the closest the IRS will come to giving you a proper tax-deductible business expenses list.

What are the deductible taxes and licenses expenses?

Infographic entitled Taxes And Licenses on Schedule C listing expenses that are reported on Line 23.
Businesses often need a variety of licenses and permits to function. Some are basic, while others, like environmental permits, are more complex. These requirements depend on federal, state and local laws. Getting a business license also shows that you've registered your business legally. It tells customers you follow all the rules and are committed to obeying the law. Taxes and licenses may not be one the most well-known business tax expense categories, but it’s still worth doing some research to see if you can claim it. You can always ask a tax pro for help if you need some extra guidance.
Infographic entitled Non-Deductible Taxes And Licenses listing expenses not qualified for the license fee tax deduction on Schedule C.

Licenses and regulatory fees

In the world of business, licenses and regulatory fees are quite the norm. Every year, countless companies pay these fees to state and local governments. But not all licenses are the same. Take liquor licenses, for example. They're not something you can just write off as a straightforward license fee tax deduction. They need to be "amortized,” which is just spreading the cost of something over time. So, with a liquor license, you don't get to write off the full amount you paid for it in one shot. Instead, you deduct it each year over a period of 15 years. The reason behind this is that liquor licenses are often considered an investment. They can increase in value over time, especially if they're in a desirable location or used in a thriving business.

State unemployment insurance fund or disability benefit fund

For self-employed individuals, the world of taxes can be a bit different than it is for traditional employees. They often have to wear many hats, serving as both the boss and the worker, and that includes taking care of things like retirement savings and healthcare expenses themselves. But there's another aspect of self-employment that's crucial to understand when it comes to taxes– contributions to state unemployment insurance and disability benefit funds. These contributions are similar to what W-2 employees and their employers pay into these funds. But it's a little different for 1099 workers. If your state considers these contributions as taxes under the law, you might be able to claim them as a license fee tax deduction.

State and local sales taxes imposed on you as the seller of goods or services

If you're selling goods or services, especially on a local or regional level, you've probably encountered state and local sales taxes. As these taxes are imposed on the seller, you'll collect them from your customers. When you collect these taxes from your buyers, it's essential to keep track of them diligently. These collected taxes become a part of your gross receipts or sales. Gross receipts are like the sum total of all the income your business generates before any expenses are deducted. In other words, it's the full amount of money flowing into your business from your sales. Now, the best part is that these state and local sales taxes you collected can be claimed as business expenses on your taxes as long as you have the records for it. In essence, it's a way to acknowledge that you're acting as a tax collector on behalf of the government, and you're not pocketing that money; you're simply facilitating its transfer to the relevant tax authority.

Real estate and personal property taxes on business assets

As a self-employed individual, you've likely invested in various assets to run your business efficiently. These assets can include not only your physical workspace, like an office or a storefront, but also equipment, machinery and vehicles. But along with owning these assets comes the responsibility of paying property taxes on them. This can include real estate taxes on your business property and taxes on the personal property you use to operate your business. If you own the property where your business is located, you're likely paying taxes on them. You can deduct these taxes as long as they are directly related to your line of work. In addition to real estate taxes, you may also pay taxes on the personal property used in your business, such as machinery, vehicles or office equipment. These taxes can be deducted as well.

Social Security and Medicare taxes

When you have employees, you're typically required to withhold a portion of their wages for Social Security and Medicare taxes, just as an employer would. But, as a self-employed individual, you're not just responsible for withholding these taxes from your employees' paychecks; you're also on the hook for your share of these taxes. The good news is that you can deduct the portion of Social Security and Medicare taxes that you pay to match what's required for your employees. This deduction recognizes that you're not getting a free pass on these taxes just because you're self-employed.

Federal unemployment tax

The Federal Unemployment Tax (FUTA) is a federal tax that supports unemployment benefits for workers who lose their jobs. Usually, employees have this tax automatically deducted from their paychecks by their employers, but self-employed individuals have to handle it on their own. However, you can deduct the FUTA tax you pay when it's time to report your income and expenses for tax purposes. You can report on Line 23 of Schedule C.

Federal highway use tax

If you use heavy vehicles for your business, like trucks, vans or other commercial vehicles, you may be subject to the Federal Highway Use Tax. This tax is designed to fund the maintenance and construction of the nation's highways, ensuring safe and efficient transportation for everyone. Fortunately, you can deduct this tax as a business expense under the taxes and licenses expense category. Whether it's license fees or other tax stuff, claiming deductions is like turning everyday costs into savings opportunities. So by knowing what you can deduct, you're essentially trimming down what you owe the IRS and keeping more of what you earn for your business.

Office Supplies Tax Deduction

Office supplies are tax deductible for self-employed individuals and can be reported under the office expenses category on Schedule C.

Phone Tax Deduction

Cell phones can be a business tax deduction for self-employed individuals if it is an ordinary and necessary expense. A separate business cell phone can be fully written off.

Advertising Tax Deduction

Ordinary and necessary promotion expenses and marketing expenses are tax-deductible for self-employed individuals. They should be claimed on Schedule C when filing 1099 tax.

Business Insurance Tax Deduction

Self-employed individuals can deduct business insurance expenses from their 1099 taxes. Sole proprietors and single-member LLCs can claim it on Schedule C.

Meals Tax Deduction

The meals and entertainment deduction in 2023 allows 1099 workers to deduct 50% of business meal costs. Certain meal and entertainment expenses are still fully deductible.

Business Travel Tax Deduction

Expenses related to traveling are deductible for business purposes. A per diem rate is set for deductible travel expenses.

Charitable Contribution Tax Deduction

If you make a charitable donation to an organization, it might count as a tax deduction. Not all charitable donations count as a write-off.

Clothing And Accessories Tax Deduction

Self-employed individuals can take the clothing tax deduction if their clothes cannot be worn outside the work environment.

Commission And Fees Tax Deduction

Self-employed individuals can claim certain commissions and fees as tax deductions if they are related to their business and are ordinary and necessary.

Contract Labor Tax Deduction

If you do any contract labor, you will have to pay contract labor taxes, also known as SE tax. Estimated payments quarterly need to be made for tax liabilities over $1,000.

Internet and WiFi Tax Deduction

Self-employed individuals can deduct some of their internet bills if they work from home as part of the home office deduction. Internet costs can also be reported on Schedule C.

Medical and Dental Tax Deduction

Certain dental and medical costs can be claimed as a medical tax deduction if itemized when paying income taxes. Expenses have to be more than 7.5% of AGI.

Rent Tax Deduction

Rent is tax deductible for self-employed individuals who work from home or have a separate office space. Some states offer renters tax credits to lower state taxes.

Repair and Maintenance Tax Deduction

Capital improvements can be claimed as a tax deduction through depreciation. Repairs to rental properties can be claimed as a business expense.

Professional and Legal Services Tax Deduction

Legal fees are tax deductible from 1099 taxes under the legal and professional fees category on Schedule C. The category also includes consultant and tax prep fees.

Shipping Tax Deduction

Business-related shipping expenses are tax-deductible. Shipping supplies and the cost of shipping are included as write-offs.

Software Tax Deduction

Software depreciation can be claimed with the straight-line method, Section 179 or through amortization. Report software depreciation on Form 4562.

Student Loan Payment Tax Deduction

Student loan interest paid is tax-deductible, and every type of education loan qualifies for the deduction.

Training and Education Tax Deduction

The educator expenses tax deduction allows eligible educators to deduct $300 of unreimbursed expenses from their taxes. Use education tax credits to lower tax liability.

Utilities Tax Deduction

Utilities are tax deductible when they are an ordinary and necessary business expense. They can be claimed with the home office deduction or as a rental property deduction.

Vehicle Insurance Tax Deduction

Interest on a car loan is tax deductible if it is used for business. Choose between the standard and actual method when claiming the vehicle deduction.

Vehicle Purchase Tax Deduction

You can claim the vehicle tax write-off if you’re self-employed and use your vehicle for business. It can also be taken if you lease your vehicle.

Mortgage Interest Tax Deduction

The mortgage interest deduction can be claimed by homeowners who itemize their expenses. You could claim the mortgage interest tax credit if you’re in a lower tax bracket.

Office Supplies Tax Deduction

Office supplies are tax deductible for self-employed individuals and can be reported under the office expenses category on Schedule C.

Phone Tax Deduction

Cell phones can be a business tax deduction for self-employed individuals if it is an ordinary and necessary expense. A separate business cell phone can be fully written off.

Advertising Tax Deduction

Ordinary and necessary promotion expenses and marketing expenses are tax-deductible for self-employed individuals. They should be claimed on Schedule C when filing 1099 tax.

Business Insurance Tax Deduction

Self-employed individuals can deduct business insurance expenses from their 1099 taxes. Sole proprietors and single-member LLCs can claim it on Schedule C.

What’s FlyFin?

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