Running a business involves a lot of responsibilities and priorities that span different areas of focus and discipline. One of the most important things a business owner must pay attention to in order to keep a business running long term, especially if there are investors or shareholders in the company, is the bottom line and keeping the business profitable. There are many ways to accomplish this, and most people who run successful companies emphasize increasing production, reducing costs, or both. Carefully cultivating smart practices that reduce taxes for the organization is an effective way to cut annual costs and maximize profits.
Exclusive Business Deductions
Most of the tax write-offs business owners can take advantage of are those that pertain specifically to their business practices. Different industries may have different deductions they may have available to them. However, many expenses are applied across most industries.
- Rent and property expenses
- Employee paychecks
- Interest on loans
- Local, state, federal, and foreign taxes
- Necessary insurance
- Retirement plans for business owners and employees
- Capital costs like start-up and improvement costs and business assets
- Overhead and materials costs
Insurance is generally deductible, but some businesses prefer to enter into the captive insurance industry to increase their tax benefits even more.
Split Home and Business Deductions
In some cases, especially when considering small businesses, employers require the use of their personal resources like a home, vehicle, or even personal loans. When this occurs, an individual can’t simply deduct all costs relating to those resources or tools. It is a little more complicated. The individual must calculate how much use was personal and how much was business-related. For example, if a company owner utilizes his or her home for business purposes, deductions for mortgage expenses, real estate taxes, equipment and furniture, and other items may be allowed but have certain limits.
Knowing how tax laws impact businesses is crucial to minimizing costs and maximizing profits for any organization.