An expense or allowance that reduces the amount of taxable income, resulting in lower tax liability.
A tax deduction is a legitimate expense or cost that a small business owner can subtract from their taxable income, which reduces the overall amount of taxes owed. It helps lower the tax burden by decreasing the taxable income, resulting in a potentially lower tax liability. Common tax deductions for small businesses may include expenses such as operating costs, salaries and wages, rent, utilities, advertising expenses, and business-related travel. By identifying and claiming eligible tax deductions, small business owners can effectively optimize their tax situation and maximize their after-tax profits. It is essential for small business owners to keep accurate records and consult with a tax professional or accountant to ensure compliance with tax laws and to identify all available deductions to minimize their tax liability.