As a private citizen who files taxes, you’ve more than likely encountered the concept of tax write-offs. But did you know that there is also an abundance of write-offs that you can claim as a small business owner? Many of these write-offs are even industry-specific and can save you a pretty penny come tax time. Before we divulge some of the best ways to take advantage of tax write-offs as a business in Charlotte, North Carolina (and beyond!) here’s a quick refresher course on how tax write-offs work as well as what constitutes a write-off. While you may already have a basic understanding of what a write-off is, if you’ve never before utilized them, it helps to have some background knowledge of what they entail and how they work.

What Is A Tax Write-Off?

In the United States, once you earn a certain amount of income per year, that money is considered taxable. A tax write-off is any legitimate expense that is eligible for deduction on your overall taxable income. While most people who file taxes are familiar with the concept, they often miss or overlook potential opportunities for write-offs (also known as deductions). Private citizens who file taxes are not the only ones who are entitled to deductions. In fact, as a small business owner, there are many different write-offs that you can potentially utilize. 

How Does A Tax Write-Off Work?

While many people can tell you what a tax write-off is, fewer would likely be able to explain just how they work. Especially when it comes to deductions in regard to small businesses. Businesses, like private citizens, are required to pay and file taxes. When you file your taxes, individual or commercial, the IRS will comb through all of the necessary documentation, including write-offs, to determine what tax bracket your business belongs in.

Individuals, self-employed people, large corporations, and small businesses can all write off expenses on their taxes. However, these prospective write-offs will be determined by the type of person (or institution) filing the tax, Part of determining what you can deduct, begins with understanding where your business falls on the spectrum based on revenue, sales, assets, or annual gross/net profits. Nevertheless, a small business is usually classified as such based on the number of employees.

It’s always important to keep track of your bookkeeping, small business or not. But, as a small business, it is essential if you want to get the most out of your potential write-offs. Keeping good books and records of your business’ income and expenses will be paramount in ensuring you don’t miss out on any potential deductions, and/or end up paying more in fees. Tax-write-offs are a completely legitimate, and legal, way to get money back on some of your most costly expenses.

Understanding Eligibility and Double-Checking Previous Guidelines

Now that you understand a bit more about how write-offs work in conjunction with small businesses, what exactly constitutes a deduction? As a small business owner, it can feel overwhelming trying to unearth all the potential write-offs, especially if you’re new to filing these types of taxes. Not only are you trying to get a bassline understanding, but the world of taxes is amendable. There are new potential write-offs that happen each year, making it difficult to keep up with it all. 

As a rule of thumb, the IRS will only consider a small business write-off valid if it is deemed necessary and ordinary. Moreover, to maximize your deductions, each year you should be researching any newly implemented write-offs or amendments to previous rules. For example, those filing their 2021 taxes in 2022 found that the rate for reimbursement on mileage for a business car had gone down from 57.5 cents per mile to 56. Additionally, if you paid interest on a business loan, there was a new limit on how much of that interest was considered deductible. It is important to verify any write-offs before they are filed. 

Potential Write-Offs for Small Businesses

So how do you take advantage of small business write-offs? It begins with understanding what constitutes a write-off. Here are some common deductions that small businesses can claim on their taxable revenue: 

• Business Meals
• Business Insurance
• Education
• Legal Fees
• Marketing and Advertising
• Rent
• Salaries and Benefits
• Travel Expenses
• Phone and Internet
• Home Office
• Startup Expenses
• Charitable Interests
• Retirement
• Moving Expenses
• Employee and Client Gifts
• And More

How To Get the Most out of a Tax Write-Off

Determining what constitutes a write-off is actually just one part of the process. For each of the aforementioned categories, you’ll want to go line by line to determine eligibility, and if so, what percentage of the write-off is eligible. To demonstrate, let’s use one of the categories as an example. Let’s say you want to determine if you’re eligible for business meal deductions. 

Just because you’d classify a meal as business-related, doesn’t automatically mean the IRS would. What ultimately dictates its write-off status is the purpose of the meal. Are you rewarding your employees with a company party with food? Good news, it’s considered deductible! On the contrary, simply taking out clients for a meal does not qualify unless your business with them was explicitly discussed. These examples showcase how interpretation can play a big role in determining legitimacy.

Furthermore, certain write-offs may only be deducible to a degree. For example, a company-wide party is considered 100% deductible. On the other hand, office snacks and meals, or business meals with clients would be considered only 50% deductible (please note that Partnerships, corporations, trusts, and employers who reimburse their employees for business expenses should refer to the instructions for their required tax forms and chapter 11 of Pub. 535, Business Expenses, for information on deducting travel, meals, and entertainment expenses).  In addition, there are always certain criteria that must be met. For business meals, consider the following:

• The costs must be reasonable in nature (not excessive or extravagant) 
• You (the owner) or an employee must be present.
• Etc.

You will inevitably rinse and repeat this process with all of your potential write-offs. While it’s decidedly a time-consuming process, the more effort that you put into organizing your books, and keeping thorough documentation throughout the year, the better equipped you’ll be to navigate the challenge.

When in Doubt – Consult a Professional in Charlotte NC

As a small business located in Charlotte NC (or wherever you find yourself filing taxes), it is always advisable to get bookkeeping services for small business near me if you’re unsure how to maximize your deductions. While it might seem like spending the money to hire additional help may cost you more in the long run, there are so many potential deductibles for small businesses, that the cost of a professional usually ends up paying for itself. In any case, do your small business a favor and look into potential write-offs to get the most out of tax season and beyond.

At McGrant Tax And Bookkeeping, our tax services Charlotte NC are here to help answer all your questions about how tax write-offs work for your small business in Charlotte NC.  Please feel free to contact us today at any of our two locations or visit our website https://mcgranttax.com and book an online appointment or physical appointment.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. McGrant Tax and Bookkeeping assumes no liability for actions taken in reliance upon the information contained herein.