Common tax deductions retailers need to leverage

Every year tax law changes. As business owners, it is important to stay up to date with the most current rules and regulations regarding your industry.

One of the biggest things that business owners rely on is tax deductions. These deductions are able to lower your taxable income and, therefore, reduce your tax liability. Some deductions have been around for ages; others have changed more recently. Here we will discuss the most common tax deductions for business owners.

Qualified business income deduction.

Many small business owners are able to qualify for the Qualified Business Income (QBI) deduction—the net amount of qualified items of income, gain, deduction and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships and certain trusts. This allows eligible taxpayers to deduct up to 20% of their QBI, plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership income. This generally includes the deductible part of self-employment tax, self-employed health insurance deductions or contributions to qualified retirement plans.

A qualified trade or business is any section 162 trade or business with three exceptions:

1. A trade or business conducted by a C corporation.

2. For taxpayers with taxable income that exceeds the threshold amount, specified services trades or businesses (SSTBs). These are defined as a trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, financial services, investing and investment trading, dealing in certain assets, or any trade or business where the principal asset is the reputation or skill of one or more of its employees or owners.

3. Performing services as an employee. Business meals are something that every business owner has run into. Whether it is taking a client out to eat or hosting a holiday party for the office, these business meals and clients can be tax-deductible. The meal deduction is 50% for most situations.

Home office deduction.

With many people still working remotely, at least part time, the home office deduction is being utilized more often. While self-employed workers, contractors, freelancers and telecommuters sometimes require a home office to conduct business duties, business owners who use a home office for business may be able to deduct expenses (both direct and indirect) tied to the creation and maintenance of the workplace. To qualify, the taxpayer must utilize part of the home “regularly and exclusively” for business. Indirect expenses must be deducted based on the portion of the home being used as a home office.

For a vehicle that is used strictly for business purposes, any costs associated with that vehicle are tax-deductible under certain circumstances. You can deduct 100% of the costs of a business vehicle.

Advertising and marketing costs.

In the eyes of the federal government, small business advertising and marketing efforts qualify as fully tax-deductible. This is only applicable if the actual expenses are considered ordinary, reasonable and necessary. Some examples include influencer marketing, TV and newspaper advertising costs.

Roman Basi is an attorney and CPA with the firm Basi, Basi & Associates at the Center for Financial, Legal & Tax Planning. He writes frequently on issues facing business owners. Ian C. Perry, an accountant with the firm, contributed to this article.