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Home » Learning Centre » 2023 Small Business Tax Deductions | A Perfect Guide

2023 Small Business Tax Deductions | A Perfect Guide

2023 small business tax deduction

Small business owners or an individual undoubtedly feel pressurized during tax time. There are numerous question that arises while filing tax returns. Replacing time for business management with questions and research of possible tax deductions and tips is unrealistic. In this Article, based on the 2023 small business tax deductions, we will guide you with the possible tax deductions and changes made from last year. Besides this, we will be sharing the legitimate tax savings tips that have worked for millions of small business owners.

Small business owners must keep themselves updated on tax laws and changes. Minor changes in the state or federal tax code drastically impact the business. We value your time, and considering today’s needs of small business owners, we have brought crisp content containing tax loopholes for small businesses in this post.

  1. No doubt, tax deductions are confusing and updated frequently. Review the latest tax changes for the year 2023. 
  2. Tax rules applied during the Covid-19 may or may not have expired in 2023.
  3. Hire a certified public accountant to ensure you comply with the tax regulations and pay the exact amount to the IRS. 
  4. Gig Economy as a tax liability.
  5. Tax Software to deploy for the year 2023.

Let us first understand the scope of the term small-business tax deduction. Without beating around the bush. Small business tax deductions are the expenses that are IRS qualified and subtracted from your taxable income. 

Gig Economy 

Popularly known as sharing economy, the Gig economy is an activity where an individual earns income based on on-demand work, services, and goods. It is a taxable income, and its activities help in self-employment tax deduction. It is mandatory to report your income earned from the Gig economy on a tax return. 

When filing taxes as a sole proprietor, reduce your take-home pay by writing off some acceptable company expenditures. Tax deductions include everything from office supplies and meals to health insurance and travel expenses. If you use your vehicle for work, keeping track of business and personal expenses is crucial. A driver for a car service only records travels from A to B. The trip from Point B to A required 30 miles of driving.

Income earned could be in the following form: 
  • Cash, property, goods, or virtual economy
  • Temporary, part-time, or side business
  • Not shown on an official income statement (such as a W-2, 1099-K, 1099-MISC, or 1099-NEC)

Activities under Gig

Making money activities that come under Gig Economy:

  • Working as a delivery boy or cab driver
  • Online selling of goods
  • Renting equipment
  • Run errands or complete tasks
  • Offering professional and creative services
  • Working in temporary mode, on-demand, or as a freelancer virtual bookkeeper

There are several 2023 small business tax deductions, and it is a bet you are here to know all of them to reduce your tax liability and invest more money in your business. Small firms can pay less in income tax because of tax deductions. 

Below are the generous tax deductions for new or small businesses in 2023. Let us look at these small business tax deduction cheat sheets

1st- Start-up costs

You must consider $5,000 as a start-up cost deduction as a small business owner in the first year of your business operation. It is only considered when your entire startup expenditures surpass $50,000. Now, you must be wondering how? Well, it includes legal fees, employee training, and market research.

2nd- Business Meals

50% deduction of qualified food and drinks items. Qualified here refers to the meals purchased concerning business. Remember to keep necessary documents such as bills, date, and location of meal business relationship with the person(s) you dine in with, etc. 

3rd- Work-Related Travel Expenses

Business travel expenses can be written off during the tax filing, including travel, car rental, hotel stay, dry cleaning, and more. Visit the IRS website for complete tax deductions related to business travel expenses. 

  • A trip must be necessary for business. 
  • Out-of-station business trip
  • Traveling far away from your home for longer than working hours and have slept or rested en route.  

4th- Home Office

It is calculated based on the square feet of your home office multiplied by $5 and capped at $1,500. It is calculated in the case of a simplified office. 

On the other hand, there is no calculation for a regular home. In the case of standard home deductions, record all your home expenses. It includes rent and utilities, the cost of home repairs, and upkeep. 

In this case, the allowable deduction method is: 

(Square feet of the home office / total home square feet) * Home Expenses

5th- Depreciation

Depreciation allows businesses to write off the cost of assets over time, including vehicles, equipment, and property. In some cases, it is the entire purchase price that is tax deductible.  

6th- Internet and calls expenses

It is expected that running your business cannot be possible with callings or internet use. Phone calls and the use of the internet for the conduction of the business allow you to write off the percentage of their cost. 

7th- Charitable Contributions

If you are making donations to qualifying charities, you can deduct those donations. You can claim the expenses on your personal tax forms if you have a sole proprietorship, LLC, or partnership business.

These five creative tax deductions have the potential to lower your tax liability. Let us see what they are: 

1st- Marketing, Advertising, and Websites

Expense that you make on social media ads, sponsorship, traditional print ads, domain costs, and subscriptions to sites such as WordPress, Go Daddy, Shopify, etc. 

These tools help build the digital business ecosystem and can be claimed to lessen the tax bill. 

2nd- Digital downloads

The second expense under creative tax deductions is digital downloads and purchase content for creating graphics. These purchases and downloads include stock photos, Fonts, B-roll, and digital images for business use. 

3rd- Software

Monthly or annual subscription to any software or online suites such as Google Drive, OneDrive, or Dropbox. Besides this, the software includes adobe creative suite, Microsoft Office, and premium subscriptions to Canva or LinkedIn. These are some of the most common items eligible for tax deductions. 

4th- Insurance

You can deduct premiums you pay for your family’s health insurance. Claims on these could act as a deduction against your personal income. Also, the deductible is the cost of company insurance, whether liability insurance or some other type.

5th- 1099 Deductions

Small company owners and freelance workers may qualify for the 1099 tax deduction. Whether you are a business owner or a contract worker, these 1099 deductions can help you save money.

You can write off the total amount you pay an independent contractor or freelancer. Suppose you hire a web designer for $1,500. All $1,500 of it may be written off.

Freelancers and independent contractors who get a 1099-NEC may be able to deduct some or all of their self-employment tax.

How to Maximise Your 2023 Small Business Tax Deductions and Get What You Deserve?

Are you uncertain about the timing and method for claiming your expenses as tax deductions? Do not get overly fixated on selecting the perfect category for every expenditure.

The Internal Revenue Service (IRS) emphasizes ensuring taxpayers accurately report their income and avoid over-reporting their expenses. Sticking to the prescribed limits ensures your tax return remains manageable and uncomplicated.

Plenty of additional deductions are available to creatives and small company owners, even though these are the ones most frequently inquired about. In this post, we have shared the 2023 Small Business Tax Deduction Cheat Sheet and Loopholes that will guide you with the tax deductions resulting in saving more money in your pocket.

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