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How can I claim tax deductions for my small business?
How can I claim tax deductions for my small business?
Being a small business owner comes with a lot of responsibility. You are in charge of your own hours, managing and tracking your business costs, finding clients and sometimes even manufacturing and delivering your own products. On top of all that, you have to pay your own taxes.
So, we’re here to ease some of that burden with a few tips to make lowering your taxes easier. We’ll also give you a list of small business tax write-offs that are easy to claim.
Key takeaways:
- If you are considered a small business, you can claim tax deductions based on your business expenses.
- You can opt for either the standard deduction or itemized deductions.
- Self-employment tax deductions can also lower your income tax.
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Small business tax deductions vs. tax write offs: is there a difference?
Small business tax deductions are usually reserved for sole proprietors who are the sole owner of their business and are responsible for paying their own taxes using form 1040 and Schedule C. These individuals can also work as independent contractors, in which case, they will receive a 1099-NEC form showing their income, which they can use to fill out the above forms.
Before we go any further, it's important to highlight that tax deductions and tax write-offs are the same thing. There is no real difference between the two, so we will be using both terms interchangeably.
All self-employed individuals have to pay taxes if their earnings meet the threshold set by the IRS. To make things easier, you can always use our free self-employment tax calculator to figure out how much you owe.
What is a tax write off?
A tax write-off is a business-related or personal expense that can be used to reduce your taxable income. So if you run a mobile hair salon, you can potentially write off, or deduct the cost of gas you purchased to drive to client appointments.
Tax write-offs are especially useful for small businesses in helping lower the amount of their income that is subject to self-employment tax and income tax. So keeping track of these business expenses can have a significant impact on your taxes if you work for yourself.
Luckily, with an app like FlyFin, tracking business expenses has never been easier to do. Simply link your expenses to let A.I. scan your expenses and find every possible deduction. Those deductions can then funnel into your tax filing, which our CPA team will prepare and file for you. You can also reach out to a CPA in the app for any question anytime at no cost.
Tax deductions for small businesses
As a small business owner, you are allowed to claim certain expenses as tax deductions (or tax write-offs) provided they are directly related to running your business or are personal expenses that affect your business. These are things like business insurance or health insurance.
This doesn’t mean you should be looking for more ways to spend money on your business just to try and get more deductions. If you deduct an expense that the IRS doesn’t classify as a legal tax write-off, you might get questions when you file your tax return. To avoid this, you can use a 1099 tax calculator to find relevant write-offs you can claim.
The standard deduction and itemized deductions are the two ways to claim small business tax deductions, and the benefits of standard vs. itemized is a crucial question to answer when filing your taxes. The standard deduction for 2022 is $12,950 for single filers, $25,900 for filing jointly and $19,400 for heads of households.
This deduction is for personal expenses and you can claim this if you think your personal expenses for the year do not exceed your allotted amount. These personal expenses can refer to any charitable donations, property taxes, or and/or medical expenses. If you choose to itemize, you will be required to fill out Schedule A.
The IRS also allows for individuals to deduct their business expenses on top of this standard deduction, but you will need to itemize your business deductions to claim this. Itemizing your business expenses involves classifying specific expenses as integral to your business because they helped you earn income.
This requires meticulous record keeping and is often subject to IRS guidelines in terms of how much you are allowed to deduct per category of expense. So if you want to write off your business expenses, you should fill out Schedule C.
Let’s use our previous example again. Your mobile hair salon brought $30,000 in income in 2021. You are filing as a single individual and decide to take the 2022 standard deduction offered by the IRS so your taxable income comes down to $17,050.
You must pay 15.3% self-employment tax on your taxable income, but you can also deduct the business expenses (by itemizing them and filling out Schedule C) that you incurred throughout the year and bring your taxable income down further.
This also applies to businesses that are an S corp, sole proprietor, partnership or LLC, which are considered "pass through" entities, where the individuals or business partners are responsible for paying the taxes associated with their business.
Is there a list of tax deductions for small businesses?
Yes! The IRS groups tax write-offs by category to make it easier for individuals to find specific deductions. Below are a few of the most common small business tax deductions that you can take advantage of.
For a more detailed list, check out this page.
Being organized and keeping track of all your expenses throughout the year is a good practice if you’re looking to maximize your deductions and pay estimated tax. And if you’re worried about starting your own business because you don’t want to pay a lot of taxes or are worried about how tax write-offs work, hopefully this has convinced you to give it a go!
What’s FlyFin?
FlyFin caters to the tax needs of freelancers, gig workers, independent contractors and sole proprietors.
But anyone can file taxes through FlyFin! FlyFin tracks all your business expenses automatically using A.I. technology.
Then, our CPA team files a guaranteed 100% accurate tax return for you – to save you a couple thousand dollars and a ton of time on your taxes.
In addition, you can download the FlyFin app and have your taxes filed in less than fifteen minutes, saving time and money.
Expert tax CPAs ensure 100%-accurate tax filing
A.I. finds every tax deduction, eliminating 95% of your work
On average users save $3,700
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