{"id":138399,"date":"2024-07-25T17:32:36","date_gmt":"2024-07-25T15:32:36","guid":{"rendered":"https:\/\/factorialhr.com\/blog\/?p=138399"},"modified":"2024-07-25T17:32:58","modified_gmt":"2024-07-25T15:32:58","slug":"tax-deduction-for-employers","status":"publish","type":"post","link":"https:\/\/factorialhr.com\/blog\/tax-deduction-for-employers\/","title":{"rendered":"What is a Tax Deduction?"},"content":{"rendered":"

Filing for taxes can be quite intimidating. And navigating the complexities of taxes can be overwhelming and complicated \u2013 especially as a small business owner. Understanding tax deductions and how to claim them can save your business a significant amount. If you\u2019re not quite confident about how they work, we\u2019ve outlined everything you need to know for you! Here, we will define <\/span>what is a tax deduction, how to claim tax deductions, and give you 10 examples of common tax deductions for small businesses and what is <\/b>not<\/i><\/b> eligible as a tax deduction<\/b>.<\/span><\/p>\n

TABLE OF CONTENTS<\/strong><\/p>\n

Definition of Tax Deduction<\/a><\/p>\n

How to Claim Tax Deductions<\/a><\/p>\n

10 Common Tax Deductions for Small Businesses<\/a><\/p>\n

8 Non-Deductible Expenses for Small Businesses<\/a><\/p>\n

Transform your business with HR tools! \ud83d\ude80<\/a><\/p>\n

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Definition of Tax Deduction<\/span><\/h2>\n

A tax deduction is the amount of money an individual or business can deduct from their taxable income resulting in a lower amount of income taxes owed. Tax deductions are also called a tax write off, these words are often used interchangeably. What <\/span>deductions<\/span><\/a> a filer can claim depends on their status such as individual, business, etc.<\/span><\/p>\n

Here\u2019s a quick, simple example of how deductions work. A small business owner made $10,000 last year and they have $2,000 worth of deductible expenses, meaning their taxable income for the year is $8,000. Now, the owner will owe taxes according to $8,000 rather than the original $10,000 meaning the amount of taxes paid to the IRS will be reduced.\u00a0<\/span><\/p>\n

Definition of a deductible\u00a0<\/span><\/h3>\n

Deductible means an amount that is subtracted from a total. In regards to taxes, deductible is a term used to describe an expense that you do not have to pay tax on. This term is commonly used in the tax realm, but it is also used when talking about insurance policies. Be careful, don\u2019t confuse the two usages!\u00a0<\/span><\/p>\n

Tax deduction vs. Tax Credit<\/span><\/h3>\n

You have likely heard of the term \u2018tax credit\u2019 before and assumed it was the same as a tax deduction or similar. However, there is a small, but <\/span>important<\/b> difference between these two terms. While a tax deduction or a tax write off, reduces the <\/span>income<\/span><\/i>, a tax credit reduces <\/span>tax liability<\/span><\/i>. We won\u2019t go any further into tax credits as this article focuses on deduction, but it is important to note the difference and understand how both can affect the amount of taxes owed.\u00a0<\/span>
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How to Claim Tax Deductions<\/span><\/h2>\n

Filing taxes<\/a> can be tricky. A vital part of your business’ financial planning is claiming taxes and small businesses can claim tax deductions through standard or itemized deductions; depending on their financial situation and expenses. Understanding how standard and itemized deductions can help your business reduce taxable income and overall tax liability will help you determine your next steps.\u00a0<\/span><\/p>\n

Itemized vs Standard deduction<\/span><\/h3>\n

An <\/span>itemized deduction <\/b>is a list of specific expenses that can be deducted from your AGI. This is more involved and requires you to maintain records of eligible expenses such as office supplies, travel, and more. Small businesses can deduct the exact amount spent on these items. Itemized deductions could be beneficial for your business if the total amount of money spent on qualified expenses exceeds the standard deduction amount.\u00a0<\/span><\/p>\n

A <\/span>standard deduction<\/b> is a fixed dollar amount set by the IRS that can be subtracted from your taxable income. Specifically, for small businesses, the standard deduction is subtracted from the sole proprietor\u2019s personal tax return. This is a more straightforward process when filing because taxpayers do not need to itemize their expenses. It simplifies the filing process; however, this fixed amount may be lower than the itemized deduction. You should take the time and investigate which one would be better for your business.\u00a0<\/span><\/p>\n

To conclude, the main difference between an itemized and standard deduction is that a standard deduction is a set amount determined by the IRS that every business can claim. Whereas, itemized deductions allow small businesses to claim the full amount of qualified expenses which could surpass the standard deduction. Be sure to keep yourself informed of all tax deductible items by reviewing the guidelines set by the <\/span>IRS<\/span><\/a>.\u00a0<\/span><\/a><\/p>\n

10 Common Tax Deductions for Small Businesses<\/span><\/h2>\n