When you run your own small business, you have a right to take tax deductions. It is one way in which the government eases the burdens on small businesses and allows for them to save money. There are loads of small business deductions in the tax laws and you can use them whether you work from home or from an office. This series will focus on home business deductions.

To figure out just what deductions you may be eligible for, a basic understanding of business deductions is needed.

How tax deductions work

A tax deduction, also known as a “write-off,” is an amount of money you are entitled to subtract from your gross income in order to determine your taxable income. The more deductions that you have, the lower your taxable income will be. That is how tax deductions save you money.

Types of tax deductions

Although there are three basic types of deductions: personal, investment and business, this article focuses solely on business deductions and this series will follow home business deductions.

Business deductions

Whether you run a business from home or from another location, you can take business deductions. Businesses have to spend money on things to run their operations: equipment, supplies, inventory, services, the list goes on and on. Most business expenses and money spent on operating costs are deductible, sooner or later.

Business profits

The federal income tax recognizes that business must spend money to make money. Thus, you are not legally required to pay taxes on every dollar your business takes in. Instead, you must pay taxes only on the amount left over after you have subtracted your businesses deductible expenses. This amount is known as your net profit. Although business deductions can become complicated, the calculation is generally very simple: The more deductions you take, the lower your net profit will be, and the less taxes that you will have to pay.

Conclusion

Every business has a right to claim business deductions under the federal tax laws. There are a plethora of such laws out there, so make sure you know all the ones you can take advantage of. Keep in mind, the basic idea is simple: deductions lower your taxable income; therefore the amount of taxes that you will pay will also be lower. This series will follow home business deductions so, for more specifics stay in touch with our blog or contact a local business attorney.[1]