Owning your own business comes with a large amount of benefits, chief among those being tax breaks! An employee pays taxes then pays expenses, while a business owner pays expenses then pays taxes. Figuring out how to maximize your tax savings through your expenses is vital to keeping cash in your pocket. Here are the 5 most common business expenses I see as a bookkeeper.
1. Cost of Goods Sold
This expense is ONLY for businesses that make and sell products. For example, you may sell hand sanitizer to hospitals. If you sell it for $10 a bottle and it costs you $1 to make it then you can have an expense of $1 given to Cost of Goods Sold. This will help lower your tax burden greatly so don’t miss out on this expense!
2. Payroll Expenses
Your business can’t run without employees/contractors and because of that you can deduct all of the money you pay them from your taxes. This is W2 employees as well as 1099 contractors, though you need to make sure these go in the correct spot in your bookkeeping and taxes, so ask your accounting professional.
3. Office/Administrative Expenses
Pens, Staplers, Business Cards, and Computers oh my! Anything that is required to make your office run can be deducted from your taxes. You may be wondering if this would really amount to a big change, but little expenses add up quick and could equal a couple hundred dollars of extra cash in your pocket.
Do you rent an office/workspace? If so, you get to deduct that from your taxes. Do you pay for electricity, gas, water, etc.? Also tax deductible. If you are missing out on this, you are probably paying far too much in taxes.
Does your business have a car that is solely for business purposes? Then you can deduct a lot of the expenses that go along with this. The only weird thing with cars is that there are two ways to deduct them, so ask your accounting professional which is best for you!