Simple Tax Deductions for Small Businesses and the Self-Employed

Every year, millions of Americans miss out on valuable tax deductions, and perhaps no sector of the population loses bigger than small business owners and self-employed individuals.

According to the Small Business & Entrepreneurial Council, small businesses with fewer than 20 workers and non-employer businesses together make up almost 98% of the businesses in America. This fact shows the enormity of the situation: if 98% of American companies took better advantage of valuable tax deductions, that large sector of the economy could get an enormous infusion of capital and perhaps grow significantly.

In this article, we’ll examine which basic tax deductions are available to small business and self-employed individuals as well as how those deductions could help their bottom line and provide more capital for company growth. (And for a more in-depth look at tax deductions for self-employed individuals, please download our free infographic.)

What Is a Tax Deduction?

First, let’s clarify what a tax deduction is. A tax deduction reduces your taxable income and can affect your overall tax rate, both of which can result in lower tax payments. This contrasts with tax credits, which don’t reduce taxable income but instead directly reduce tax owed.

RELATED: 5 Bookkeeping Tips for Small Businesses

5 Basic Deductions That Could Make a Major Impact on Your Taxes

Here are five simple deductions that could significantly lower your taxable income this year.

Self-Employment Tax: Self-employment income is subject to the Self-Employment Contributions Act (SECA), which means that self-employed individuals pay the full amount of their Social Security (12.4%) and Medicare taxes (2.9%). Individuals employed by a business, however, only pay half of each because the federal government charges their employer the remaining portion.

Thankfully, there’s a silver lining: self-employed persons can deduct half of each tax (or the equivalent of the employer portion) on line 27 of their tax return.

Self-Employed Health Insurance Deduction: If you made a net profit during the previous year and have a business insurance plan, you may be eligible to deduct your health insurance costs, including Medicare premiums paid voluntarily for yourself and your family.

If you employ a staff, you can deduct costs incurred on their plans as well. And if you take advantage of the self-employed health insurance deduction, you can still deduct other medical expenses.

Marketing and Advertising Fees: This deduction is especially important for startups and the self-employed since promotional materials are such an integral part of getting a business off the ground.

Eligible materials include space in print publications and on websites, radio spots, branded promotional items and apparel, and business cards. In addition, you can also deduct the time you put into creating these promotional materials and even the costs related to creating and maintaining your company website.

Insurance Premiums: As stated above, health insurance-related deductions are listed separately on your tax returns, but you may also be able to deduct business-related insurance premiums such as errors and omissions insurance, workers’ compensation coverage, and malpractice insurance.

In many instances, small business owners may also deduct fire and flood insurance as well as theft coverage. For questions about which types of business-related insurance are deductible, please contact S.H. Block Tax Services for a free consultation.

Legal and Professional Fees: Small businesses and self-insured individuals can usually deduct business-related legal and professional fees. So, if you regularly work with an attorney, accountant, insurance broker, or human resources professional, you can likely deduct these costs on your annual income tax return. This is something to remember when you’re facing an especially difficult or complex task (like negotiating a small business tax audit, for example) and may need to get help from a professional.

S.H. Block Tax Services Can Help You Save Money on This Year’s Tax Returns

While helpful, the list above is by no means exhaustive. If you would like to learn more about helpful tax deductions and credits for small businesses and self-employed persons, please contact S.H. Block Tax Services today and get your free consultation by calling (410) 793-1231 or completing this brief form. We have an A+ rating with the Better Business Bureau and decades of experience with tax liabilities, estate administration, and bookkeeping, so we’re equipped to handle all your financial and tax-related needs.

The content provided here is for informational purposes only and should not be construed as legal advice on any subject. Please read our full disclaimer here.

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