The IRS collected over $4.9 trillion from businesses in 2022. One of the most important aspects of preparing for tax season as a business owner is understanding your options for deductions.
Planning can enable you to maximize deductions and minimize tax liabilities. To best plan, it helps to know the deductions potentially available.
Home office
You may be eligible for this deduction if you operate your business in your home. You will need to compute the percentage of the home you use exclusively for business purposes. You can then use that percentage to claim deductions for expenses such as utilities, mortgage interest and property taxes.
Travel and entertainment
Businesses that require travel or client meetings can often deduct related expenses. You might be able to write off transportation, meals and lodging as business expenses. However, you must maintain clear documentation with receipts and logs to substantiate these deductions in case of an audit.
Equipment
Investing in technology and equipment for your business can also yield significant deductions. The Section 179 deduction allows businesses to deduct the full purchase price of qualifying equipment and software and also claim depreciation losses. There are limits that change annually to how much you can claim.
In addition to deductions, you should explore available credits as part of your tax planning. Using credits and deductions can help reduce your liability significantly, but the IRS has strict rules you must follow. As the tax season approaches, make sure you understand the options available to you to ensure a smooth and efficient filing process.