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2023 Tax Deduction Cheat Sheet (Plus Key Tax Workarounds)

Form a Business Today Business Tax New Business Finances

2023 Tax Deduction

Cheat Sheet (Plus Key
Tax Workarounds)
February 14, 2023 by Peter Mavrikis

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 Table of Contents

15 Tax Deductions for Your LLC or Startup

Bonus Tax Deductions

Tax Workarounds for LLCs

Tax Terms to Add to Your Repertoire

7 Tax Mistakes to Avoid This Tax Season

What Can I Claim Without Receipts?

What Is the Best Write-Off for Taxes?

How Much Can an LLC Write Off?

Maximize Your Deductions With a Tax Specialist

Not only can preparing taxes for your startup or LLC can
be complicated, but it can also be costly. You could be
overlooking thousands of dollars in deductions a year if
you file without assistance. This essential tax deduction
cheat sheet gets you started with the most eligible tax
breaks you could be missing out on.

15 Tax Deductions for Your

LLC or Startup
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 You might be a business owner wondering, "How can I
legally reduce my taxes?" There are several legitimate ways
a business can utilize deductions to lessen its tax liability
and keep more profits. Most of these tax deductions can
apply whether you're a startup or have been in business
for a number of years.

Use this tax deduction cheat sheet of 15 ways to shave

money off your tax bill:

1. Home Office

If you work from home, you can apply this deduction

toward your taxes. This deduction will allow you to claim
expenses associated with the upkeep of your home
office, including a portion of your home utilities, Wi-Fi,
repairs, home insurance, etc. Make sure to keep all
receipts and documents related to working in your home
office.

2. Office Supplies
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 All the equipment, tools, and supplies needed to run your
business are deductible. These can include:

Stationary
Computer
Printer
Office furniture (desk, chair, shelving, drawers, etc.)
Ink cartridges
Thumb drives
Business-related subscriptions and computer
programs
Postage and packaging material
Cleaning supplies

3. Travel Expenses

You can deduct 100% of your business and travel

expenses. These can include air travel, business lodging,
meals, entertainment, parking fees, car rentals, and gas.

4. Phone and Internet

You can write off your cell phone or landline use as long
as you use your phone for business purposes. This can
include everything from your monthly cell phone bill to
the cost of your new smartphone.

5. Business Meals
:
 Prior to 2021, business meals were capped at 50%.
Luckily, this has changed since the COVID pandemic. For
the 2022 year, you can deduct 100% of business meals
when "talking shop" with employees, but keep your
receipts.

6. Business Startup Costs

This deduction is ideal for new businesses that have

invested money to form and start their LLCs. New
businesses can deduct up to $5,000 in taxes for startup
costs and an additional $5,000 in organizational costs.

7. Bad Debt

If you have a vendor or customer that has not paid their

bill, has gone out of business, or has not responded to
any attempt to pay off their balance, business owners
can claim a deduction from this "bad" and uncollected
debt.
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:
 8. Self-Employment Tax

Sole proprietors and LLCs with only one owner pay the
full amount of self-employment tax, which is 12.4% for
Social Security and 2.9% for Medicare (15.3% total). The
IRS allows you to deduct half of the self-employment tax
(7.65%) on your income taxes, therefore reducing your tax
:
 liability.

9. Legal and Professional Fees

Whether it's for a consultation, to draft a contract, or to

prevent or defend against a lawsuit, lawyer fees can add
up quickly. The good news is that legal fees related to the
operation of a business are tax deductible. The same
applies to professional fees, including tax preparation
services.

10. Automobile Expenses

If you use your vehicle for business purposes, you can

deduct your auto expenses, including miles driven. You
can also count your vehicle as a business asset and
deduct the depreciation value.

11. Medical Expenses

Medical expenses are going up every year. One way to

save is by tallying up the cost of your health plan, co-
pays, deductibles, and any other fees related to medical
needs, including medicines. (Worth repeating: Keep good
records.)

If medical expenses add up to more than 7.5% of your

adjusted gross income, then you can deduct anything
over that amount.

12. Bank Fees and Interest

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 Interest payments and bank fees can take a huge chunk
of a business's revenue. This is especially true when
dealing with a high-interest rate environment.

If your business uses credit to finance purchases, the

interest charges are fully tax deductible. The same
applies if you take out a loan to help fund your company.

13. Advertising and Promotions

If you're a startup ready to print your first batch of

business cards, announce a promotion, or launch an
advertising campaign, all your expenses are tax
deductible.

In addition, the fees associated with maintaining and

running your website, advertising yourself online, or even
sponsoring your local middle school softball team are all
tax deductible since they're considered the "cost" of
advertising your goods and services.

14. Retirement Plan Deductions

A SEP IRA is an ideal way for business owners to sock

away money in a retirement account and deduct the
contribution from their taxable income.

15. Business Entertainment

Showing your clients a good time can be part of your job,

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 especially if you're looking to build relationships and
discuss business prospects. If that's the case, the IRS
allows you to write off 50% of business entertainment
expenses.

Bonus Tax Deductions

Additional tax deductions for 2023 can include the
following:

Cost of licenses and certification fees

Self-Employment Health Insurance
Charitable donations
Health Savings Account (HSA)
Child care
Business insurance
Student loan interest
Business-related education

Tax Workarounds for LLCs

Unlike a C Corporation, an LLC does not pay corporate
income tax. That doesn't mean you don't need to file a
business tax return, but this does offer a big benefit by
allowing you to treat the LLC as a "pass-through" entity
for tax purposes. Simply stated, the income earned by
the LLC "passes through" the business owner's personal
:
 taxes. Here's how this and other tax loopholes for LLCs
will help save you money:

Pass Through Taxation - (What Is It?)

Filing as an S Corp. To gain the maximum tax benefit,

your LLC will need to file taxes as an S Corp. This will
help you reduce your self-employment taxes by
paying yourself a salary from a portion of the revenue
and distributing the rest of the money earned by the
business as a dividend.
Capital expenditure deductions. Money used to buy
physical assets for a business, such as property,
vehicles, buildings, equipment, or technology, is a big
investment many small businesses make. Payments
for these assets and their upkeep can be deducted
incrementally throughout the year.
Qualified Business Income Deduction. This deduction,
also commonly called QBI, is worth up to 20% and
can be taken in addition to standard and itemized
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 deductions. This applies to net income (minus
business expenses). Instruction can be found in IRS
Form 8995 or through a tax professional.

Tax Terms to Add to Your

Repertoire
When working on your business taxes, it's important to
know the terms used in the tax filing process. To help,
we've put together a list of the most common tax terms
and their definitions:

Amounts that are subtracted from the gross

Above-the-
income include contributions to a retirement
Line
account, health saving account, student
Deductions
loan interest, etc.

All income received during the year,

Adjusted including wages, dividends, capital gains,
Gross Income and interest, minus all qualified deductions
(AGI) and expenses. The AGI is used to calculate
tax liability.

Method of writing off the cost of an asset,

Amortization such as equipment, vehicles, or buildings
over a number of years.
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 Capital Funds used to improve a business,
Expenditure particularly when it comes to growing
income capacity.

Money gained from the sale of an asset such

Capital Gain as shares, property, or land. This amount is
above the cost of the asset.

Money lost from the sale of an asset such as

shares, property, or land. To calculate capital
Capital Loss
loss, subtract the purchase price from the
lower selling price.

When credits or deductions cannot be used

Carryover and must be transferred to the following
year's tax filing.

The amount that can be applied to reduce

the total tax bill. A $1,000 tax liability with a
Credit
$100 credit will reduce the federal income
tax bill to $900.

A deduction earned for donating to a charity,

Charitable qualifying non-profit, or foundation.
Contribution Charitable gifts can include money, clothing,
real estate, or household items.

A monetary amount that can be subtracted

from the taxable income and used to reduce
Deduction
:
 a filer's taxable income.

Someone who depends on a taxpayer for

Dependents
support. This can include a spouse or child.

Earned
Income Tax A refundable tax credit for low and
Credit (EITC) moderate-income families with children.

The estimated amount deducted from

income throughout the year. This method is
an option used by business owners to
Estimated Tax
submit estimated taxes in four equal
Payments 1 (888) 462-3453
amounts dispersed on a quarterly basis. Any
overpayments will result in a refund after
annual taxes are filed.
How It Works Services Resource Center

The amount that can be deducted from the

AGI reflecting all the people dependent on
Exemption
your income. An exemption can include
yourself, your spouse, or your children.

The classification used by the IRS to

calculate the standard deduction and other
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 tax breaks. There are five filing statuses:
Filing Status - Single
- Married (filing jointly)
- Married (filing separately)
- Head of household
- Widow or widower (qualifying)

The tax imposed on businesses and

Income Tax individuals (or families) by the federal
government based on income received.

An item-by-item list of the deductions that

Itemized can be claimed including medical expenses,
Deduction mortgage interest, real estate tax, charitable
contributions, etc.

Structured entities that allow business

owners to avoid double taxation. In many
Pass-Through
cases, this lets business owners pay taxes on
Entity
personal income earned through the
business.

Self- Income received for services provided and

Employment paid to a sole proprietor, freelancer, or
Income independent contractor.

The fixed amount that taxpayers can deduct

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 Standard from their income. The number is adjusted
Deduction every year and varies whether taxes are filed
as single, married, or head of household.

Also called tax write-offs, these are the

expenses that can be deducted from your
AGI to calculate your final tax liability. The
Tax tax deduction can fall into the following
Deductions categories:
- Above-the-line deductions
- Itemized deductions
- Standard deductions

The amount owed to the IRS calculated in a

Tax Liability
tax filing.

Taxable The amount used to calculate how much is

Income owed in taxes.

Fulfilling tax obligations and honestly

Voluntary
reporting all income and tax activity related
Compliance
to filing with the IRS.

Tax paid by the employer for a full-time,

W-2
salaried employee.
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 The amount deducted from wages or other
Withholding
income to pay toward taxes.

7 Tax Mistakes to Avoid This

Tax Season
Are you preparing your taxes for your startup or LLC on
your own? Be cautious when filing business taxes without
the help of a tax-deductible service — there are penalties
and fines you could end up facing. Plus, the rules to file
are always changing. Read on to learn some of the most
common mistakes to avoid:

1. Making "avoidable" errors on your tax form: Spell your

name correctly, include the correct Social Security or
EIN, and make sure all the boxes you check are
intended to be selected.
2. Overlooking or forgetting to add information that the
IRS is already aware of: As we get closer to tax
reporting time, you'll begin to receive documents
showing how much you earned. These may include
bank interest, dividends from stock that you own, or
direct income earned. Make sure you enter all these
amounts accurately, as the IRS already has this
information. Failure to match the records collected
from your bank, brokerage firm, or employer will raise a
huge red flag with the IRS.
3. Neglecting to add business deductions: Go back to the
:
 beginning of this article and review the deductions
you can legally claim for your business. Neglecting to
add these deductions will make your tax bill much
higher.
4. Keeping inaccurate records: It's important to keep your
bills, receipts, invoices, and other documents related
to your business in case you get audited by the IRS.
Having this paperwork will prove that the deduction
and credits claimed are valid. Keep these records for
at least three years.
5. Missing your tax payment date: If you owe money to
the IRS, make sure you pay it by or before the cut-off
date. Generally, the due date is April 15, but this can
vary if the date falls on a weekend. For 2023, the date
is April 18. Failure to pay will result in a penalty of 5%
of the amount owed per each passing month.
6. Missing your tax filing date: The tax filing date for
2023 is April 18. Forgetting to file your taxes by the
due date will lead to fines and penalties. If you really
need more time, make the effort to file for an
extension by submitting Form 4868. This will give you
four more months to gather your documents and
information. Just make sure you file by October 16.
7. Submitting your return unsigned or undated: This
happens more often than you'd think. Unsigned or
undated tax returns cannot get processed, so if you
followed all of the advice in this article but neglected
to sign your form, you will need to refile completely.
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 What Can I Claim Without
Receipts?
Having receipts is the best and safest way to claim
deductions. If you're audited, you'll need to show them. If
you make a claim and don't have a receipt, a bank
statement, invoice, or bill may also work as a record.
Some items that may fall into this category include
vehicle expenses, retirement plan contributions, health
insurance premiums, and cell phone expenses. Most of
these items will have a record in your bank statement or
a bill statement.

What Is the Best Write-Off for

Taxes?
The answer depends heavily on your business and the
types of expenses it incurs. However, for the lowest tax
bill possible, you should be taking full advantage of all the
write-offs listed above.

How Much Can an LLC Write

Off?
For the most part, there is no limit to the amount that an
LLC can claim as a deduction for the business. When it
comes to write-offs, it's important to reiterate that the
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 documentation and receipts are kept to validate the
deduction. Some deductions, however, do have set limits.
The deductions limit for starting a business is $5,000 for
startup expenses and $5,000 for organizational
expenses. If startup costs exceed this amount, they can
be amortized over a maximum 15-year period.

Contributions to a self-employment pension (SEP) fund

also have a limit and are capped at 25% of the
company's revenue or $61,000 for 2022. For a Simple
IRA or Simple 401(k), the maximum contribution is
$13,500. This can increase to $16,500 if you are 50 or
over.

Maximize Your Deductions

With a Tax Specialist
Filing taxes can be complicated and time-consuming if
you're running your own business, especially if you
undergo an audit. Avoid missing crucial information or
deductions by hiring a tax-deductible professional. Incfile
offers a business Accounting and Bookkeeping service to
make your business filing a breeze.

Peter Mavrikis

Peter Mavrikis is an author and editor with over 25

years of experience in publishing. He has worked as
the Editorial Director for Barron’s Educational
Series, as well as Kaplan Test Prep, where he ran
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 the test prep, foreign language, and study guide
divisions. Peter has also written several books on
history, exploration, science, and technology.

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