Small business owners rely on their tax professionals every year to help them navigate tax season. Maximizing tax deductions can often be crucial to small businesses when every penny may count.
This tax season, WebCE is here to help tax professionals assist their small business owner clients. This article lists five of the most common small business tax deductions. WebCE also offers a large selection of professional education courses to help you stay completely up-to-date during the current tax season.
Rent Expense Tax Deduction
In general, your client may be able to deduct rent as an expense only if the rent is for property they use in their trade or business. If they have or will receive equity in or title to the property, the rent is not deductible.
In order to be deductible as a business expense, rent must also be reasonable. Ordinarily, the issue of reasonableness arises only if the small business owner and the lessor are related. Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. Rent isn’t unreasonable just because it is figured as a percentage of gross sales.
For more information, see IRS Publication 535 (2020), Business Expenses.
Home Office Expense Tax Deduction
If your client is working from home, they may qualify for a home office deduction. There are two basic requirements for a home to be eligible as a tax deduction:
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Regular and exclusive use. Your client must regularly use part of their home exclusively for conducting business. For example, if your client uses an extra room to run their business (and only to run their business), they can take a home office deduction for that extra room.
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Principal place of your business. Your client must show that they use their home as their principal place of business. If your client conducts business at a location outside their home but also uses their home regularly to conduct business, they may qualify for a home office deduction.
Deductions for a home office are generally based on the percentage of the taxpayer’s home that is devoted for their business use. If your client uses a whole room or part of a room for conducting business, they will need to calculate the percentage of their home devoted to business activities.
For more information, see IRS Publication 587 (2020), Business Use of Your Home.
Car Expense Tax Deduction
Vehicles used for business purposes may have deductible expenses for licenses, gas, oil, tolls, insurance, mileage, and more. If your client uses their car for both business and personal purposes, you must divide their expenses based on actual mileage.
For more information, see IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses.
Travel Expense Tax Deduction
For tax purposes, travel expenses are defined as the ordinary and necessary expenses of traveling away from home for your business, profession, or job. An ordinary expense is one that is common and accepted in your client’s trade or business. A necessary expense is one that is helpful and appropriate for your business. An expense doesn’t have to be required to be considered necessary.
Deductible travel expenses for small businesses may include airfare, car rentals, and hotels. It can also include sending baggage or display materials to and from their temporary work location. Non-entertainment-related meals might be deductible as a travel expense if they are not lavish or extravagant.
For more information, see IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses.
Insurance Expense Tax Deduction
Your client may be able to deduct the cost of businessowner insurance (BOI) or other insurance used for their small business. Types of insurance that small businesses may deduct from their taxes includes:
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Insurance covering fire, storm, theft, accident, etc.
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Credit insurance covering losses from business bad debts
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Employee medical insurance
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Liability insurance
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Malpractice insurance
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Workers’ compensation insurance
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State unemployment insurance fund contributions
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Overhead insurance
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Vehicle insurance
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Employee life insurance
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Business interruption insurance
For more information, see IRS Publication 535 (2020), Business Expenses.
Professional Tax Courses from WebCE
WebCE wants tax professionals and taxpayers to have the most up-to-date information during the current tax season. Tax professionals are encouraged to order tax continuing education (CE) courses so you’ll be completely prepared for the 2021 tax season and able to help your clients to the best of your ability.
WebCE offers current courses covering every major industry topic. The best part is you can take your course from home or work using WebCE’s convenient online platform. To order courses, click the catalog buttons below or call WebCE’s first-class customer support team at 877-488-9308.
Tax CE Course Catalog