Tax deductions can go a long way toward helping a business survive those first few chaotic years. Before revealing some of the best tax deductions for small businesses, it’s important to understand the difference between a tax deduction and a tax credit. Also, depending on the type of business you have, some tax deductions may be more beneficial than others. Knowing which ones to focus on can help your business thrive.
Wait, what’s the difference between a tax deduction and a tax credit?
The two ideas achieve similar results in different ways. A tax deduction lowers a business’ taxable income, while a tax credit reduces the amount a business owes. Think of it this way:
A $500 tax credit issued to a business means that business lowers its tax bill by $500. A tax deduction for that same business has the potential to drop the business into a lower tax bracket.
Seven small business deductions you need to know
There are many deductions available, but not all of them will apply to you and your business. Be sure to talk to a tax professional or reach out to your local chapter of the Small Business Administration (SBA) to learn more information. Then, you can determine the best tax opportunities for your business. [This article originally appeared on the Simple Dollar in September, 2020. It was updated in December, 2021.] The loan needs to originate from a financial institution like a bank – not from a friend or family member. You must also show the intention to pay off the loan. The amount of interest you can deduct will depend on the type of loan you have.
