The government has a vested interest in keeping businesses afloat and people employed. When companies and their workers fare well, they in turn contribute to the economy.
To make it easier for businesses and their employees, the IRS allows both to claim certain deductions at tax time. You can ease your own tax burden and keep more money in your bank account by taking advantage of these industry specific tax deductions.
Work-Related Deductions
Despite being paid a salary or hourly wage, employees still often incur work-related costs that they must pay out of their own pockets. The IRS allows people in many occupations to deduct expenses that relate directly to their jobs. Some of these jobs and expenses include:
- Sales: People who work in sales can claim deductions for work-related gas mileage, travel expenses, home office costs, and bills related to client entertainment.
- Police officers: Police officers can deduct union dues, trade association fees, classes, and work-related cell phone bills from their taxes.
- Teachers: Teachers are allowed to claim deductions for buying their own work supplies like computer software, paper, writing utensils, books, and other teaching materials.
- Construction workers: Construction workers are allowed to deduct union dues, clothing, shoes, tools, and costs related to advertising their services, among other work-related costs.
These deduction examples are just a few that the IRS permits workers to claim on their tax returns. If you plan on including any of them on your own return, you should be prepared to submit receipts as proof if needed.
Research and Experimentation Tax Credit
Just as government relies on businesses to stay profitable, it also needs them to design and invent new products and services. When your business devotes much of its time to research and experimenting, you may be eligible to claim the Research and Experimentation tax credit on your returns.
This credit allows business owners to deduct up to 20 percent of their qualified research expenses. Companies that benefit from this deduction include those in industries like:
- Agriculture
- Pharmaceuticals
- Engineering
- Aeronautics
- Technology
The credit returns some of the money that companies put out for inventing and making new products and services. The money can then be invested back into those businesses.
Domestic Manufacturing Deduction
Virtually every American business that manufactures products on U.S. soil is eligible for the Domestic Manufacturing deduction. This credit encourages U.S. companies to retain domestic production jobs rather than outsourcing them to overseas factories.
To be eligible for this credit, your company must be located inside U.S. borders. Your business also must manufacture its products domestically.
Accelerated Machinery and Equipment Depreciation Deduction
The Accelerated Machinery and Equipment Depreciation deduction allows business owners to deduct their machinery and equipment's depreciation value immediately rather than gradually over time. It essentially gives owners an interest-free, upfront loan from the government and encourages businesses to invest in equipment and machines for their shops and factories.
Graduated Corporate Income Credit
This tax return credit is not so much a deduction as it is a courtesy extended by the IRS to corporate business owners. It provides tax relief for businesses that earn high profits, allowing the owners to put more money back into their companies.
For the graduated corporate income credit, the first $50,000 of a business' income is taxed at a flat rate of 15 percent. As the income level increases, the rate increases as well until it maxes out at 35 percent for incomes over $350,000. If your business brings in revenue that is over this amount, you can keep more of that income by using this credit on your tax return.
The IRS offers numerous deductions to lighten the tax burden of American business owners. You can use these deductions to lower your own tax amount and keep more money for your business and your bank account.
