Transcription
All right, so we need to talk about the 30 best tax writeoffs for businesses. If you earn any business income, whether it's through an LLC, S-corp, or simply through a side hustle, side gig, or even as a $1099 contractor, listen up because I'm about to put some serious money back into your pockets.
The last video I did on this topic helped over 1 million people to reduce their taxes, and today I'm coming back with twice as many writeoffs, twice as many strategies, twice as much value, and even better, the most up-to-date information to help you save even more money in taxes.
There are over 30 million businesses in the US, and 90% of them will overpay on taxes when they file their next tax return. And why is that? It's very simple: they are going to miss some or all of the tax writeoffs that I am about to share with you right now.
I have seen this happen over and over again. There are people who will literally pay tax on 100% of their business revenue simply because they don't use a business bank account, simply because they don't keep track of their business expenses, or do their bookkeeping on a very basic level. But then there are people who actually do these things but miss out on additional tax writeoffs that are less obvious and buried under 76,000 pages of tax law.
Now, regardless of what end of the spectrum you fall on, I promise you that you will benefit from at least one, if not several, of the tax writeoffs that I'm about to mention to you. So, do yourself a favor and save this video. Use it as a checklist. Share it with someone who needs it. Heck, you probably need to share it with your accountant as well.
If you're new here, my name is Sherman, the CPA, and I help business owners with stuff like this every single day. At mycpacoach.com, I share my real-world experience for free here on YouTube. So be sure to subscribe for even more guidance to less stress and lower taxes.
Now, let's get to these tax writeoffs.
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All right, number one, the home office deduction. If you use any space in your personal residence to work on your business, you probably should be taking the home office deduction. Now, this deduction allows you to write off a portion of your total home expenses under your business. This includes your rent or mortgage interest, property taxes, home insurance, utilities that a lot of people forget, Wi-Fi, repairs, HOA fees, and even depreciation.
In order to qualify, you must have space in your home that is exclusively used for your business. This space should not be used for any personal purpose. It should almost be as if your business is renting space in your home. And because you pay for all of the home expenses anyway, the tax law allows you to write off the portion that is attributable to your business. For example, if you have $100,000 in home expenses and you use 10% of your home for your business, you could write off $10,000 with the home office deduction and save thousands in taxes.
Number two, self-employment tax. So, look, as a business owner, you are subject to twice as much employment tax than you would be as an employee. Now, this is because as a self-employed individual, you must pay the employer portion and the employee's portion of Social Security and Medicare tax, which comes out to be 15.3% of your income. But because you are watching this video, you are going to learn two ways to turn this into tax savings.
So, first of all, self-employment tax is deductible. A lot of people do not know this, but your accountant should be deducting the amount of self-employment tax you pay, which will, in turn, lower your income tax. But even better, you can avoid self-employment tax altogether. You can simply switch your business entity to one that is not subject to any self-employment tax at all, like an S corporation or a C corporation. For example, if you earn $150,000 in business income, you would pay about $23,000 in self-employment tax. But if you simply switch to an S-corp, you would only pay tax on the wages you take from the business. So, if you only took a $60,000 W2, you would only pay $9,000 in employment tax and save about $14,000 in tax in this scenario.
Now, I have full videos on how to do all of this, by the way. So be sure to subscribe to our channel.
All right, number three, the depreciation deduction. Depreciation is one of the best tax writeoffs you can use because it can be taken as an expense on your tax return, but it actually costs you no money out of your pocket. It is a write-off against assets you already own.
So, look, if you buy any tangible assets, whether that be equipment, machinery, furniture, vehicles, real estate, or other types of property, you can write off depreciation to reduce your taxes. The tax code allows you to deduct the cost of these types of property over its expected useful life. Yet, most business owners fail to write off any depreciation on assets they own or purchase, which only results in higher amounts of taxes.
So, look, there are a lot of ways to play with depreciation to deduct more or less of your assets in a given year. There's straight-line depreciation, double-declining depreciation, Section 179, bonus depreciation, and so on. But at a minimum, you just need to take one of them, and at a maximum, you need to use the one that saves you the most amount of money in taxes. To start, just make note of any assets you purchased in the past or plan to purchase in the future and find out the best depreciation method to save on taxes.
Recently, for a lot of people, that has been bonus depreciation. Bonus depreciation allowed taxpayers to deduct up to 100% of the cost of assets they purchase in the first year. But the bonus depreciation rules are changing every single year, so it's important that you or your CPA has a good handle on these strategies to maximize your tax savings.
Number four, the qualified business income deduction, also known as the QBI deduction. Now, look, this is a freebie tax deduction that can save you thousands of dollars in taxes, but so many people miss this when they file their tax return. So, look, if your total taxable income is less than $180,000 or $360,000 with a spouse, you can take the QBI tax deduction and receive a 20% deduction against your business income, no questions asked. So, if you earn $100,000 in qualifying income, that means you can write off $20,000. It's that simple.
Now, if you earn over the threshold for this deduction, you may still qualify, but the rules are a little bit more complex. In a nutshell, the rules exclude businesses that primarily sell services performed by employees, like doctors, lawyers, accountants, or other skilled professionals. But there are a lot of exceptions, and some service businesses still qualify. So, even if you're above the threshold, make sure you talk to your accountant about this. I've seen so many people miss this deduction when they actually qualify for it.
Number five, the vehicle tax deduction. If you use a vehicle to conduct any portion of your business, you can write off your vehicle expenses under your business. And because vehicles are tangible assets, you can also deduct depreciation expense on vehicles you own. But the IRS allows you to do way more than depreciation. You can write off a portion of all of your actual vehicle expenses, like gas, repairs, insurance, lease payments, maintenance, annual registration fees, and so on. Or you can write off the business miles that you drive. The IRS allows you to deduct around 65 cents per mile under the standard mileage method. To keep things simple, just choose the method that saves you the most amount of money in taxes.
Number six, business travel deduction. When you travel for business, you can deduct your flights, your hotels, your meals, and transportation costs directly related to the business purpose of that travel. Typical use cases for business travel include travel to board meetings, travel to conferences, seminars, or meetings with business contacts. And by the way, those business contacts can even include members of your family if you associate your family with the business as partners, employees, board members, or contractors. So, if you want to write off more of your travel expenses, try to incorporate some business during your travel so you can write off more of your expenses to pay less taxes. If the trip is 100% for business, then you can deduct 100% of these types of expenses.
Number seven, business meals. If you eat out at a lot of restaurants, you may be able to deduct a lot of these expenses under the business meals deduction. And all you have to do here is meet the criteria for this deduction in order to write it off, which simply involves talking about business with another business contact. And again, these business contacts can be family members if those family members are associated with your business. A lot of people are able to increase this deduction by incorporating people they know in their business.
Now, as with any business deduction, the meal should be in the pursuit of income, or in other words, you should be discussing things that can help your business earn more money. You should be keeping up with your receipts, meeting notes, and other documentation as backup for this write-off if you are ever questioned about it.
Number eight, hiring your children. Hiring your kids under your business helps you in two ways. First, you can write off the payment you make to your children, which reduces your taxes. And then secondly, the income can be tax-free to them if you pay them less than the standard deduction. Now, the standard deduction is around $14,400, so if you paid them up to that amount, they would pay no income tax when they file their tax return. And in some cases, you may even pay them more than the standard deduction to take advantage of their lower tax bracket when you are in a very high one.
Number nine, employee salaries and benefits. Okay, since we're already talking about hiring people, you should also know that the money you pay anyone to work for your business as an employee can be written off. And this is not limited to wages. You can write off the cost of benefits you provide to them, such as health insurance, 401(k) plans, uniforms, supplies, and so much more. In some cases, business owners are so clever to design benefit plans that they too can benefit from as the owner while taking advantage of these tax writeoffs. Remember, as a business owner, you too are self-employed. Let's discuss some examples of this.
Number 10, 401(k) contributions. You can get a dollar-for-dollar tax writeoff for every dollar you contribute to a traditional retirement account. And as a business owner, you have the ability to make very large contributions to your retirement because you can contribute as both an employer and as an employee of the business. So, as of 2024, you are able to deduct up to $69,000 of contributions made to a traditional SEP IRA or a solo 401(k), and you can write off up to $7,000 of contributions made to a traditional IRA. This alone gives you over $76,000 in additional tax writeoffs, which can result in tens of thousands of dollars in tax savings. And some business owners are able to get twice this amount by incorporating their spouse.
Number 11, retirement pension contributions. Some business owners love contributing to their retirement in ways that go beyond the limits of a 401(k) plan. If that's you, then you probably want to think about setting up a pension plan. Now, a pension plan allows business owners to contribute up to $100 to $300,000 to their retirement account in a single tax year and write off the whole contribution. You can literally save over $100,000 in taxes through these types of plans. And I have a full video on our channel that goes into detail about this. But in short, you need to look into defined benefit plans or cash balance plans. These plans can be a great way to write off more of your income while building a nice nest egg for retirement.
Number 12, health savings accounts. A health savings account is another tax-deferred account that you contribute money to and receive a tax writeoff in exchange. Now, you can set up an HSA as an individual or set it up through your business. But either way, the contributions are tax-deductible. Now, unlike retirement accounts, you can use your HSA to pay for various health expenses, like doctor visits, dentist visits, gym memberships, massages, chiropractic care, and so on. And when you use the account to pay for these types of things, the funds you use are not taxed. So, in a sense, you are writing off these health expenses and never paying tax on your contributions if you use this account correctly.
Number 13, health insurance premiums. Now, this is a big one that a lot of business owners miss, especially when they don't officially offer health benefits to their employees. So, look, Section 162 of the tax law allows self-employed individuals to deduct their health insurance premiums. It doesn't matter if the policy is in your business name, your name, or your spouse's name. It also doesn't matter if your spouse's employer pays a portion of your health insurance policy. The portion you pay can be written off as a business expense. If you are on the policy and your household is paying any part of the expense, the business can pay for it directly and write it off, or it can reimburse you to deduct it. This is a very easy one that you're already paying for that you don't want to miss.
Number 14, business insurance deduction. Since we're already talking about insurance anyway, let me be very clear here: almost any business insurance that you buy can and probably should be written off if you want to pay less taxes. It doesn't matter if it's general liability insurance, property insurance, errors and omissions insurance, or another type of business insurance. It is likely deductible. If you need the insurance to run your business, you should be able to write the expense off.
Number 15, advertising expenses. So, yes, the IRS will give you a tax break for advertising your business. They want your business to grow and flourish and provide jobs for the economy, which is impossible without advertising. So, the money you spend to promote your business is fully deductible. In fact, it is very common for a lot of businesses to increase their advertising spend to wipe out their income and reduce their taxes. This allows them to grow their business very quickly in terms of sales, customers, employees, and so on, while offsetting the sales with advertising expenses that ends up wiping out most of their income. Then, once they strike gold with their flourishing business, they can pull back and reduce their advertising expense and reap the rewards of a highly successful and profitable business. So, if your plans are to grow your business anyway, the government will help you do so by allowing you to write off all of your advertising expenses to get there.
Number 16, education expenses. All right, so let's be honest, people don't just wake up and run successful businesses. It requires skills, training, education, and so on. The IRS understands this and therefore allows you to write off your education expenses under your business to pay less taxes. This includes courses, seminars, conferences, trade publications, and books. But that's not it. You can also write off the cost of certain certifications, diplomas, degrees, licenses, or other professional requirements that are necessary for operating your trade or business. If you are required to have a specific designation to operate your business, then you should seek to deduct the expense as well under your business. This includes all expenses connected to it, from annual registration fees, continuing education, and so on. Pay for it from your business and write it off as an education expense.
Number 17, cell phone deduction. I get asked this question all the time: "Can I write off my cell phone under my business?" The answer is very simple: yes, you can, if you use it for your business. If you use your cell phone to communicate with business contacts, to film or shoot content, or any business purpose for that matter, you can write it off under your business. You can write off the device itself, your service plan, any storage you pay for, and any apps that you pay for that are directly related to your business.
Number 18, rent expense. So, if you rent any space for your business, it is tax-deductible. It doesn't matter if it's an office space, warehouse, storage space, or any space for your business. The expense is deductible if it's necessary to run your business, which leads us perfectly to the next tax write-off here.
Number 19, renting your personal residence. Now, this strategy is referred to as the "Augusta strategy." So, as a business owner, you can rent your personal residence to your business. When you do this, two things happen. Number one, the money the business pays you is a tax write-off, which helps you pay less taxes. And number two, the money you receive from the business is tax-free to you, as long as you do not do this for more than 14 days in any tax year. Now, there has to be a business purpose for the expense, and I've seen everything from board meetings to photo shoots to training new employees and so on be used as a business purpose. So, to do this correctly, you do need careful planning.
Number 20, utilities expense. Any utilities you pay for for your business office can be written off. This includes Wi-Fi expense, electricity, gas, water, trash, and other utility expenses you pay for for your business.
Number 21, office and technology expense. Now, this is a very broad category that encompasses a variety of different things you can write off. But in short, you can write off 100% of direct office admin and technology expenses that you incur to operate your business. This includes office supplies like computers, printers, pens, and notebooks. This also includes software and tools for accounting, website hosting, and other applications. In simple terms, if you need it to run your business, it is deductible and should be written off to reduce your taxes. Just be sure to always pay for these types of things with your business account to make it easy to account for these write-offs at the end of the year.
Number 22, repairs and maintenance. So many people get this confused. So, when you spend money to repair or maintain business property, the cost can be written off as long as the IRS views the expense as a repair and not a renovation. Now, a repair is an expense to keep the property running in normal operating condition. If that's the case, the expense is fully deductible. But a renovation is a cost that improves the value of the property. This is not fully deductible, but you should certainly aim to write off all of your repair and maintenance fees for any business property that you own.
Number 23, legal and professional fees. So, almost any legal or professional fee can be written off under your business, including the fee you pay to the person who files your tax return. Examples of professional fees that you can write off include advertising agencies, insurance brokers, call centers, accountants, lawyers, or other professionals that are needed for businesses in your industry. Now, to successfully write off these expenses, you do need to issue a 1099 tax form to any professional you pay over $600 in any given year. Whenever you write off an expense, the IRS wants the person receiving that money to report that income, and a 1099 form is what makes that possible. This can all be easily done through an accounting system like QuickBooks, but be sure to do this to take this write-off without any additional headaches or penalties from the IRS.
Number 24, contract labor. So, in addition to any legal and professional fees, you can also write off any contract labor you pay for to run your business. For example, some businesses hire virtual assistants, graphic designers, or other contractors to help them deliver goods and services to their customers. The process to write off these expenses are the same as the last point: get W9 forms from any contractor you hire and issue a 1099 tax form to them at the end of the year to successfully write this off from your taxes.
Number 25, bank fees. All right, so it's no secret that you should have a business bank account to operate your business, but so many people forget to write off the bank fees they incur to maintain this account, and you don't want to make this mistake. So, not only can you deduct your monthly maintenance fees, but you can also write off any fee you incur for wire transfers, ATM fees, overdraft fees, late fees, and more. Virtually any fee that your bank charges you to operate your business bank account can be written off on your tax return.
Number 26, merchant processing fees. Some people have no idea how much they are paying to their merchant, so I know for sure they are not writing these expenses off. Now, this is a very easy tax write-off to miss because merchant fees are typically taken out before deposits even hit your bank account, but these fees are tax-deductible. So, if you use a platform like Stripe, Square, PayPal, or another payment processor, make sure you tally up the fees that you pay them. You should be able to request an annual statement of their fees to make sure you are including the expense as a tax write-off on your return.
Number 27, business loan interest. If you already have a business loan or you think you could use one in the future, make sure you write off your interest expense. A lot of people miss this because the principal you pay on business loans is not tax-deductible, but the interest expense you pay on it is. And normally, when you make payments on these types of loans, it includes both interest and principal, making it even easier to miss out on this write-off. Now, this can be easily avoided by getting an interest statement from your lender at the end of each year to be sure you write off 100% of the interest expense that you incur.
Number 28, business taxes. So, not only can you write off the fee you pay someone to prepare your tax return, but you can also write off certain taxes that you pay. And this is very important. Earlier, we mentioned that you can write off self-employment tax, but you can also write off certain real estate taxes, payroll taxes, and other taxes that are directly attributable to your business. Now, this does not include your individual federal and state taxes, but it has to be a tax that your business is directly liable for and is paying for. And if it is, you can likely write this off on your tax return.
Number 29, the tax write-off that you are not creating. So, look, savvy business owners also look to create tax write-offs outside of capturing things they already pay for to reduce their tax liability by as much as possible. Now, this may involve reinvesting in your business or restructuring your business to take advantage of various tax write-offs or strategies. For example, incorporating family in your business may allow you to write off more meals, more travel, or shift income to family members in lower tax brackets. Another example is spending more money in your business through things like advertising or research and development to make your business more valuable while wiping out your tax liability. My point here is that with careful planning, you can create tax deductions out of thin air and pay less taxes as a result.
Number 30, Section 162 expenses. So, look, if you are unsure about something you can write off that we did not cover, I want to point you to Section 162 of the tax code, which gives the ultimate guidance to tax write-offs. It states that you can deduct all ordinary and necessary expenses paid or incurred during the taxable year to carry on any trade or business. People ask me all the time about what they can write off, and my response is the same every single time: any ordinary and necessary expense that you pay for to run your business can likely be written off. Now, "ordinary" just means that it is common for other businesses in your field of work to also have this expense, and "necessary" means that the expense is necessary for your business to earn income. A lot of expenses can be written off by meeting this simple definition. And if you need immediate help with this, go on over to mycpacoach.com to get a plan to reduce your taxes as soon as possible.