Tax-Deductible Expenses You Need Know About
The basic idea in business is to make the gap between your revenues and expenses as large as possible. You want to be bringing in loads of money and while spending relatively little to get it. On average, companies tend to earn 5 percent more money than they spend, translating into healthy profits (though it can vary tremendously by sector).
How much you have to pay in corporation tax, however, depends on qualifying profits. That is, the total pile of earnings after you take into account all legitimate expenses.
The trick to proper business accounting is to make sure that you account for everything that might cut into your profit pile. After all, if you’ve spent money on it, it shouldn’t also have to pay tax.
In this post, we’re going to take a look at some of the lesser-known tax-deductible expenses you can use to reduce your tax bill substantially.
Home Office Deduction
Many of you don’t run companies with separate premises. Instead, you work from a home office, orchestrating your activities using email and telephone. These facilities, however, aren’t free. You still have to pay a mortgage, electricity, and lighting. Regular businesses would deduct these expenses from their profits automatically, rightly pointing out that they are expenses. But some people who work from home might forget to do this.
The tax authorities, however, are generous and set caps for how much you’re able to spend on your home office. You can then deduct this from your total earnings for the year and reduce your overall tax liability.
Making sure that you get the right business insurance coverage for your enterprise is essential. You need to ensure that you’re protected, should your customers or colleagues decide to sue you for any reason.
Insurance isn’t just an optional extra – it is a necessary business expense, and something that helps protect your firm from shutdown. You can, therefore, claim insurance expenses on your tax return. Just deduct whatever you pay in premiums from your gross profits, and you’re all set.
Many businesses rely wholesale on vehicles to carry out their operations. It wouldn’t be fair, therefore, for the tax authorities to force companies to omit them from expense calculations and pay for them separately out of profits.
Typically, authorities will allow deductions per mile traveled (for instance, 45 cents per mile). Thus, the more you use your vehicles for business, the more money you can subtract from your final tax bill.
Today, there are plenty of apps that allow you to track mileage. Failing that, you can use your vehicle odometers.
Entertainment is perhaps the trickiest area of expense law. Sometimes, you’re allowed to deduct entertaining spending from your overall tax liability, but not always.
Company party expenses that invite all employees are typically 100 percent deductible so long as they’re not overly extravagant. Similarly, you are allowed to subtract gifts to clients, but up to a set threshold that changes from year to year with inflation.
Categories: Outside Contributors
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