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business tax payments

Business Tax Payments: Which Are Deductible?

November 02, 2021

Business owners tend to have more tax responsibilities than individual taxpayers. They are not only required to withhold taxes from the paychecks of their employees but also pay other employment taxes, such as Social Security and Medicare tax. There are, however, certain business tax payments they can deduct as business expenses. Here’s a quick look at some of the different taxes businesses typically pay and which may be deductible.

Which Business Taxes Are Deductible?

In general, the IRS allows you to deduct various federal, state, local, and foreign taxes that are directly attributable to your trade or business as a business expense. Federal income taxes, however, are non-deductible.

State Income Taxes

Depending on your business entity and the state where it resides, you may be able to deduct your state income taxes. If filing a Schedule C for your business, you may not deduct the state income taxes on this form. Corporations and partnerships may deduct state income taxes on their business returns if they are directly related to business activity.

Sales Taxes

The sales tax you pay on business purchases is deductible if the item itself is considered a deductible business expense. Simply include the full purchase price, including tax, in the amount you paid. Larger purchases, such as vehicles, may require that the sales tax be determined separately. It’s a good idea to consult with a tax professional if you have any questions on how to handle your sales tax deduction.

Payroll Taxes

The business portion of your payroll taxes is deductible, excluding any amounts withheld from your employees’ pay for FICA taxes (Social Security and Medicare Tax).

Property Taxes

You may deduct property taxes that are based on the assessed value of your business real estate. If you operate out of your home, however, you may only deduct a percentage based on the part of your home used exclusively for the business. For example, if your personal property taxes are $800 and only 25% of your home is used for business purposes, you may claim a $200 deduction.

Other Deductible Business Tax Payments

In addition to the taxes previously mentioned, several other business taxes are typically tax-deductible, including:

  • City or state gross receipts tax
  • State unemployment insurance and disability fund contributions
  • State unincorporated business tax
  • Tangible and intangible property tax
  • Customs, import, or tariff tax
  • License tax
  • Vehicle registration tax (business)
  • Gasoline tax (if you claim actual expenses)
  • Phone taxes
  • Business travel expenses taxes (hotel taxes, air travel taxes, meal taxes, etc.)
  • Excise taxes and fuel taxes
  • Miscellaneous taxes (membership dues, stamps, safe deposit rental, and more)
  • Membership dues taxes are deductible if the dues are for business-related organizations

To ensure you are taking full advantage of the various business tax deductions available, be sure to speak with a tax professional. At Tax Assistance Group, we offer free business consultations and affordable tax preparation rates.