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As a business owner, I’m always looking into tax laws for any new credit and deductions that I’m able to claim. Plus, the tax code could change each year, so that’s why it’s important to stay on top of your finances and know what you’re eligible for because you could see tax savings.
Some of the business expenses that you may be able to deduct for your business include:
- Training and licensing expenses
- Mileage or Actual Expenses for the business use of your car
- Marketing and advertising costs
- Travel if you attend any out-of-town conventions, training sessions, or conferences
- Meals you pay for when meeting with clients for business purposes. Under IRS guidelines, you can deduct 50% of the cost of business-related meals.
- Home office, if you work out of your home. If you have a home office that represents 10% of the square footage in your home, you may be able to deduct 10% home costs like mortgage interest, property taxes, rent, and utilities.
- The purchase of office equipment, such as a dedicated business computer, printer, smartphone, or fax machine.
- Internet and cell phone expenses.
You may be looking for entertainment expenses in the list; however, entertainment expenses like treating your client to a sporting event were eliminated under The Tax Cuts and Jobs Act.
The Tax Cuts and Jobs Act (TCJA) of 2017 also introduced or increased some business-related tax deductions you should know about.
20% Qualified Business Income Deduction
The 20% Qualified Business Income (QBI) deduction is one of the biggest business-related tax changes that happened under tax reform.
For the tax years 2018 through 2025, the 20% QBI deduction allows self-employed, S-Corps, and partnerships to deduct 20% of their qualified business income, which is income associated with business activity in the United States.
The Qualified Business Income Deduction is subject to a few limitations based on the type of income, type of trade or business you are in, and the amount of net income you earn, but in general, the deduction is available to eligible taxpayers whose 2023 taxable incomes fall below $364,200 for those married filing joint returns and $182,100 for other taxpayers.
If your income is above the $182,100/$364,200 taxable income thresholds, your 20% QBI deduction may be limited if your business is considered a service type business like the health, law, or accounting category to name a few. Any business where the principal asset is the reputation or skill of the owner is also included.
Equipment Deduction Amounts
If you buy equipment in the course of doing business, the maximum deduction for 2023 is $1,160,000 for business equipment like computers, printers, and office furniture. The amount you can deduct is still limited to the amount of income from business activity.
Depreciation Schedules for Automobiles
If you use a vehicle for business over 50% of the time you can deduct for depreciation of that automobile. The maximum amount you can deduct each year depends on the date you acquired the passenger automobile and the year you place the passenger automobile in service. For example, did you purchase a car for your business after September 27, 2017 and placed it in service during 2023? The maximum depreciation deduction for 2023 for the first year is $20,200 or $12,200 if the passenger automobile isn’t qualified property or if you elect not to claim the special depreciation allowance.
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