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Costs Businesses Can Deduct to Lower Taxes

Businesses tend to have more tax responsibilities than individual taxpayers. They are required to withhold taxes from the paychecks of their employees, and also pay Social Security and Medicare tax. However, there are certain costs that businesses can deduct to lower their tax liabilities. About Money shares the different kinds of taxes businesses must pay and how they can benefit from deductions:

“How and Where to Deduct Business Taxes

lower taxes“If your business is a corporation or partnership, you can deduct allowable taxes through your business tax return.

“If you are a small business or self-employed, and you file your business tax return on Schedule C along with your personal tax return, you can deduct allowable business taxes on Line 23.

“Are Payroll Taxes Deductible?

“If you have employees, your business portion of payroll taxes is deductible to you. This does not include amounts withheld from employee pay for FICA tax (Social Security and Medicare tax).

“For example, if you have a total of $5,000 that you have withheld from employees for FICA tax, you must pay an additional $5,000 as your employer portion. Your employer portion is deductible as a tax.

“Is Self-employment Tax Deductible?

“Self-employment taxes are paid by business owners for Social Security/Medicare benefits. The amount is based on the profit of the company, but the business does not pay these taxes; they are paid on the individual’s personal tax return.

“Like FICA taxes paid by employees, self-employment taxes are not deductible. But, as part of the calculation for your self-employment tax, you can deduct half of the amount of the tax as part of the calculation for your personal adjusted gross income.

“Other Deductible Business Taxes

“Taxes your business pays are a cost of doing business. Other than income taxes, you may deduct expenses for other taxes your business pays:

  • City or state gross receipts tax
  • State unemployment insurance contributions and contributions to state disability funds (depending on the state)
  • State income tax or state business franchise tax
  • State, city, or local sales taxes you paid on business purchases
  • Real estate tax or property tax on real estate owned by your business (but see below)
  • State income tax
  • State unincorporated business tax
  • Tangible and intangible property tax
  • Customs, import, or tariff tax
  • License tax (for your business license, city license, or other)
  • Business vehicle registration tax
  • Gasoline tax, depending on how you claim business mileage costs (actual expenses vs. standard mileage)
  • Telephone and cell phone taxes
  • Taxes on business travel expenses, such as hotel taxes, air travel taxes, meal taxes, entement, laundry, etc.
  • Excise taxes and fuel taxes
  • Miscellaneous taxes on items like membership dues, stamps, safe deposi rental, and others.
  • Taxes on membership dues are deductible if the dues themselves are deductible. Only dues for business-related organizations are deductible.

“Deducting Property Taxes

“You may deduct the cost of property taxes if the tax is based on the assessed value of the real estate. You may not deduct property taxes paid for what the IRS calls ‘local benefits;’ that is, for ‘local benefits and improvements that tend to increase the value of your property,’ including assessments for streets, sidewalks, water mains, sewer lines, and public parking facilities.

“How to Deduct Sales Taxes on Business Purchases

“Sales taxes you pay for items you purchase for business are deductible if the purchase itself was a deductible business expense. You don’t need to be separated out; these taxes are considered as part of the cost of the item. Just include the total amount you paid, including the tax. For a large item purchase, like a car, the sales tax is determined separately; check with your tax professional to see how to handle this.”