Reduce Business Taxes: Top 19 Deductions You Can Claim in 2024
Tax season can be daunting, especially for small business owners. However, knowledge of the permissible tax deductions can help them minimise their taxable income and improve their financial position. A business tax deduction is an expense that can be subtracted from revenue for the calculation of taxable business income. The following blog discusses 19 key deductions to consider in 2024:
Employees’ Salaries, Wages, and Commissions
Businesses can deduct payments made to employees in the form of salaries, wages, commissions, etc., where such expenditures are reasonable, necessary, and for services actually rendered. Sole proprietors, partners, or LLC members are not considered employees. However, S-corp owners must pay themselves a reasonable salary comparable to that of non-owner employees.
Bad Debts
It is acceptable to deduct bad debts if an attempt was made to collect them, the amount was included in the income before, or the debt was loaned out as cash. However, the debt should be incurred for business purposes, not personal reasons.
Rent
Monthly rent payments for business property are allowed deductions for the year they are made. However, receipts of rent made in advance can only be accounted for the period within the taxable year.
For example, if a business paid $90000 as rent for November, December, and January, and the financial year ends on the 31st of December, then it would be allowed to write off $60000 for the current year (2 months x $30,000 each). The $30,000 spent for January is tax deductible in the following year.
The amount of rent must not exceed the market value.
Business Licenses
Certain licenses, such as general, health, alcohol, zoning, and environmental permits, are allowed deductions when calculating the business’s taxable income. These licenses are usually necessary in cases when certain legal activities are to be carried out in particular states or fields.
Taxes
The following are the types of deductible taxes:
- State and local income taxes
- Foreign income taxes
- Payroll taxes (like Social Security, Medicare, and unemployment taxes)
- Property taxes on business assets
- Excise taxes
Interest
All interest on business loans, such as those borrowed from credit card companies, are deductible provided they are solely used for business activities. The business must establish a “debtor/creditor” relationship with the lender, and the loan must be expected to be repaid. Usually, interest could not exceed 30% of the company’s earnings.
Depreciation
Depreciation enables businesses to allocate the cost of acquiring fixed assets like furniture and buildings over their useful life. Methods like bonus depreciation (60% in 2024) and Section 179 expensing, which has a limit of $1,220,000 for 2024, can help businesses to expense a significant portion of these costs in the first year.
Advertising and Promotion
In most cases, companies can claim advertising expense, cost of social media marketing campaign, and printing business card expense as tax deductions. Expenses that build goodwill in the community also qualify, although some judgements may be required to determine their eligibility.
Please Note: Expenses paid to finance political events or to influence legislation are non-deductible because these are not considered advertising.
Insurance
Deductible expenses also include insurance premiums for property, liability, cybersecurity, medical, and workers’ compensation. Certain policies, like life insurance, are only allowed for deduction if the business is not a beneficiary of the policy.
Start-Up Costs
This includes expenditure on market research, promotional activities for the business opening, and wages for trainee employees. The business can deduct up to $5,000 on start-up costs if the total expenses incurred across the first year are less than $50,000. Any other expense over $50,000 reduces the deductible amount on a dollar-for-dollar basis. The remaining costs may be amortised over 180 months.
Travel and Meals
These include fares for business-related travel and accommodation. Meals that are considered part of the employee benefits or included in company-wide parties are 100% tax-deductible. Any meal taken while on a business trip or meeting a client can be claimed as a deduction of up to 50%. However, expenses for entertainment, such as a concert ticket, are non-deductible.
Vehicle Expenses
These expenses can be claimed under the actual expense method, where taxpayers can claim every cost or the standard mileage rate, which is 67 cents per mile for the year 2024. Companies should select the method that provides the highest tax advantage.
Credit Card Processing Fees
Expenses incurred to process credit card payments, including fees, are permitted to be claimed as a business expense, mitigating the costs of accepting the cards.
Certain Education Expenses
Any expense that increases or maintains an employee’s skill level can be deducted. However, any expenses incurred to ensure that an employee is qualified in a new trade or career are not allowed for deduction. Other deductible education-related expenses include workshops, webinars, textbooks, and seminars.
Legal and Professional Fees
Fees paid to lawyers, accountants, bookkeepers, and other specialists are permitted deductions if the expenses were incurred for business purposes. This includes charges for services such as filing taxes, legal matters, and marketing services.
Certain Repairs and Maintenance
Repair and maintenance costs for vehicles, furniture, and equipment are 100% tax deductible. However, expenditures that bring a material increase in the property’s capacity, productivity, or quality are regarded as improvements, which are not immediately deductible. These are added to the original cost of the property, and then they are depreciated.
Telephone and Internet
Expenses on telephone bills and Internet connections used for business activities are tax-deductible. However, if these services are used for both business and personal use, only the business half can be claimed as a deduction.
Software and Subscriptions
Subscriptions to software and other technologies used in the business can be claimed as tax deductions. Examples of business software include project management software, accounting and bookkeeping software, and customer relationship management software.
Membership Dues
Subscriptions/memberships paid to professional or business organisations are reduced, provided they are not paid for entertainment. New subscriptions to trade journals and professional publications are also eligible.
Conclusion
For more information about tax deductions, you can visit the HMRC website. If you are looking for the best-in-class iXBRL services in the UK, consult DataTracks at +44 (0) 203 608 8035 or email enquiry@datatracks.co.uk.