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Small Business Tax Exemptions: What's Not Taxed Explained


STG Accounting

April 29, 2024

Tax exemptions can significantly reduce taxable income, ultimately lowering your tax burden. That makes them a lifeline, especially for small businesses. Understanding what is not taxed is essential, as that knowledge helps maximize your savings and effectively plan for the tax year. This guide will shed light on the small business tax exemptions you can use!

5 Main Types of Exemptions

1. Business Expenses

To help stimulate growth, incentivize business owners, and support specific industries, many costs and expenses associated with running a small business can be exempt from taxes. While your particular industry, location, and revenue may impact what does or does not qualify as a deduction, common business expense tax exemptions include:

  • The costs associated with marketing your business
  • Office supplies
  • Building rent and utilities
  • Employee salaries

Because many aspects of a small business may qualify as a tax exemption, holding onto receipts and keeping pristine, detailed, up-to-date records is imperative. If you can't prove it, you can't claim it! For that reason, many small business owners utilize professional bookkeeping services.

2. Employee-Related Costs

In addition to employee salaries, other costs associated with employing a staff may also qualify.

Do you offer health insurance to team members? During tax time, those premiums may be tax-exempt. Have you set up retirement plans for your employees and contribute each month? Those contributions may also qualify as a deduction.

These types of employee-related tax exemptions help lower your tax liability and ensure you can attract top candidates by offering quality perks.

3. Depreciation

Most tangible assets, like a company car or machinery, lose value over time. Thanks to depreciation, small business owners can compensate for the loss of value in those tangible assets.

But depreciation can be tricky! Because you're deducting the asset’s cost over its useful life, this is an exemption best left to the professionals. That way, you can stay legally compliant while maximizing cash flow.

4. Investments

Many incentives are available for small businesses to encourage investments in specific regions or industries. For example, if you invest in research and development, you may qualify for extra savings.

If you're interested in investing money but want to ensure those investments come with tax breaks, speak with a business accounting and bookkeeping firm before making any moves!

5. Donations

Charitable contributions are typically tax-deductible, which means you can support a worthy cause while lowering your taxable income—a win-win! Receipts are essential for claiming these deductions, so be sure to file them in a safe place.

Exemptions at the State & Local Levels

In addition to these five categories of small business tax exemptions, you may be able to utilize many state or even county exemptions.

For instance, a business may be exempt from paying local property taxes if it moves to a specific geographic area. Because exemptions at the local level are ever-changing, it's essential to work with a professional who is well-versed in small business tax planning and preparation. You can lean on their expertise and get help navigating complex tax codes, ensuring you claim all applicable exemptions.

Lower Your Tax Liability With Help From STG Accounting

Specializing in accounting and bookkeeping for small businesses, STG Accounting is here for all your business service needs. Get a quote to start exploring the exemptions your business qualifies for!

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