Maximizing tax deductions can significantly reduce the taxable income of small businesses, thereby saving money. This guide will walk you through key deductions available for small businesses in 2024, how to qualify for them, and essential documentation to maintain.
TLDR
Identify all potential deductions for your business.
Ensure proper documentation for each deduction.
Consult a tax professional to leverage all available deductions effectively.
Step-by-step detailed guide
1. Identify Potential Deductions
Pass-Through Deduction (QBI): Deduct up to 20% of net business income. Verify if your business qualifies as a “qualified” trade or business and check income limitations.
Employee Salaries and Contract Labor: Document personnel expenses properly. Collect W-4 forms for employees and W-9 forms for contractors, and issue 1099 forms at year-end.
Vehicle Tax Deduction: Choose between business mileage or actual vehicle expenses. Maintain a log of business use, including dates, destinations, miles driven, and business purposes.
Travel Expense Deduction: Deduct travel expenses incurred for business purposes. Keep detailed records of travel including receipts and business purpose.
Advertising Expenses: Deduct costs related to promoting your business, including digital advertising, print advertising, and more.
Education Expenses: Deduct expenses for courses, seminars, conferences, trade publications, and books that improve business skills and value.
2. Maintain Proper Documentation
Personnel Documentation: Collect and retain W-4 and W-9 forms, and issue 1099 forms at the end of the year.
Vehicle Use Logs: Maintain logs for business vehicle use, detailing dates, destinations, miles driven, and business purposes.
Receipts and Records: Keep all receipts and records for travel, advertising, and education expenses.
3. Consult a Tax Professional
Evaluate Eligibility: Ensure your business structure and revenue sources fit within the QBI deduction rules or leverage exceptions.
Maximize Deductions: A tax professional can help you optimize deductions and ensure compliance with tax laws.
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