Your taxable profit will be lower the more deductions you take, so it’s in your best interest as a business owner to maximize them, so long as they adhere to the IRS deduction rules.
Most “small” businesses do not provide a 401(k) as a benefit for their employees, but if you can, you have a distinct advantage when hiring. And, a 401(k) plan has several tax advantages. First, your business is generally permitted to take a tax deduction for its contributions to the plan when the contributions are made. Those can be made as a simple match—or—in the form of profit sharing.
2. Legal and Professional Fees
Each time you seek counsel from a lawyer, engage with consultants, etc. the fees you pay to those individuals are fully deductible. The only exception is when the work they are doing with you is meant for something that will take place in future years. In those cases, you must deduct their fees over the life of the benefit.
3. Entertaining for Business
Do you employ a PR firm, creative agency or other group that advances your business? Do you host prospective clients or customers in your city or town? Each time you have a catered meeting for these folks at your office, or treat them to entertainment directly before or after a business discussion, you’re allowed to deduct 50% of that cost.
As a CEO, a big portion of my contribution to our business comes from traveling to meet our partners and attend industry shows and conferences. Of course, the cost of lodging, airfare, rental cars, meals, etc. can get very expensive. Thankfully, most of these expenses can be deducted. There are specific rules regarding length of stay and what specifically you can deduct, so I would recommend you consult the IRS website for details.
5. Charitable Contributions
An important part of being a business owner is giving back. At Guidant we have an entire team dedicated to managing our charitable efforts and we’re proud to help the community in this way. The great thing is that these donations are tax-deductible. For C Corporations, the corporation can deduct such contributions; if you operate an LLC or S Corporation, the deduction can be passed through you to claim on your individual return.
David Nilssen is the CEO & Co-Founder of Guidant Financial. Read more tips about becoming a successful entrepreneur in his book, Making the Jump into Small Business Ownership. He can be found on Twitter at @DavidNilssen. The advice in this column should not be considered legal tax advice.