How to Make Your HR Expenses Tax-Deductible
Updated: Mar 11
As a business owner, every tax deduction matters. The IRS has made it easy to deduct your business expenses from your business taxes. If you are a small business owner, this can be an important deduction for the year. You may also want to consider taking advantage of other tax deductions that apply to your business as well. In this article, we discuss how you can make your HR and other business expenses tax-deductible.
Making Your HR and Other Business Expenses Tax-Deductible
The following items are considered "business expenses” and can therefore be deducted from your business taxes.
1. HR Consulting
If you choose to outsource your human resource needs, you are actually able to write off the entire cost of the HR consultant or company. This is a great way to move HR-related expenses from your payroll to a fully deductible expense. Winning!
2. Wages Paid to Employees
You can deduct wages paid to employees who work for your business. However, you cannot deduct the cost of providing benefits to an employee unless you pay at least $1,000 in annual wages.
3. Business Use of Home
If you use your home for work, you can deduct the rent, mortgage interest, property taxes, maintenance, and utilities associated with the home on your taxes.
4. Traveling Expenses
Traveling expenses include airfare, lodging, meals, car rentals, tolls, and parking are all tax-deductible if they meet certain requirements:
The trip must be primarily for business reasons.
The expense must be necessary and reasonable.
You must incur the expense during the taxable year.
The expense must be directly connected with the operation of your trade or business.
These expenses do not exceed 2% of your adjusted gross income.
4. Meals & Entertainment
You can deduct the cost of food and entertainment while away from home. The IRS will allow you to deduct up to 50 percent of your total meal and entertainment expenses. For example, if you spend $100 at lunch, you can deduct $50. You will need to keep records showing each item's date, location, purpose, and cost.
If used for business purposes, you can deduct the cost of electricity, gas, water, sewer, trash collection, etc. For instance, if you run a home-based business, you may need to use more power than you would if you worked in an office building. In this case, you can deduct the extra electric bill. You can also deduct the costs of telephone service, Internet access, fax machines, copiers, etc.
6. Interest Paid on Loans
Interest payments made to finance equipment, machinery, supplies, or inventory can be deducted. However, interest payments made to finance real estate must be capitalized into the property's purchase price. For example, if your company buys land and pays off the loan, you can deduct the interest paid on loan. However, if your company borrows money to build a factory, you cannot deduct the interest paid on that loan.
You can deduct those payments if you have to pay taxes because of your job. But remember, only some types of taxes qualify as deductible. Sales taxes, payroll taxes, and other state and local taxes are not tax deductible. You will also want to make sure that any deductible taxes are deductible. For example, if the city imposes a sales tax on all purchases but allows you to deduct half of the amount, you should still report the full amount of the tax.
8. Insurance Premiums
Insurance premiums are generally deductible and are considered business expenses. Make sure that you obtain receipts for any insurance purchased. Insurance premiums are usually reported on Form 1040 Schedule A (Form 1040). They help protect against loss of assets, such as theft, fire, flood, storm, earthquake, etc.
9. Legal Fees
Legal fees related to your business can be deducted. If you hire a lawyer to draft a contract or file a lawsuit, you can deduct the legal fee from your income. Be careful, though. Many states limit how much of your legal fees can be deducted. Check with your accountant to see what is allowed.
In conclusion, there are many different ways to reduce your tax burden. You can lower your overall tax bill by making smart decisions, using the right deductions, and outsourcing to human resource consultants, like CultureShift HR.
If you are interested in learning more about what an outsourced HR department looks like. Get in touch!