Small Business Tax Guide

Small Business Tax Guide

It has been one heck of a year – and this fact has altered some aspects of the tax schedule. Small to medium-sized businesses have been particularly affected. This is why we compiled this short intro to business tax for the coming fiscal year. Of particular importance is what is deductible and what is not – so let’s dive right into the requirements.

Deductible Expenses for Business Tax

Business expenses that are considered deductible by the Internal Revenue Service are easily articulated. The expense must be necessary or even essential to business operation, as well as ordinary (no exotic appliances, for example – even if they are necessary). Let’s take some examples for clarity:

Any business worth the title must spend money on promotion; this is deemed a necessary expense and is thus deductible for business tax. Fees that you charge for your legal or consulting service are also in the same boat, as are fixed expenses like rent and property taxes. Deductible expenses for business tax also extend to cyber and office security, business-related travel, licenses and the cost of education for employees (for job-related skills, of course), and even car mileage as concerns business trips, etc.

What Isn’t Considered Deductible on Business Tax Returns

There are general categories involved here, and any expenses that fall under them are not deductible. These categories are personal expenses, cost of goods sold, and capital expenses.

For the cost of goods sold portion, which is abbreviated as COGS. The type of business that you’re incorporated as determines which tax form you use to classify COGS. Nonetheless, the materials, labor, transport, etc. costs that are associated with your product/service cannot be delineated as deductibles on your business tax.

Similarly, your capital expenses – patents, business appliances, and improvements to your property, for example – are not deductible. The reason is that these expenses aren’t geared towards daily operations, but towards the future status of your business.

Lastly, of course, personal expenses aren’t counted as deductibles for business tax. Even when something is shared as both personal and business (if you work from home, for example). The rationale is that you would have that apparatus anyway, for home use, if you lacked the business.