Tax deduction

A tax deduction is a business expense that can be subtracted from taxable income, reducing the total amount a company owes in taxes. For employers, deductions help lower overall tax liability, making it essential to track eligible expenses carefully.

Homebase Team

Min Read

What is a tax deduction?

A tax deduction is a business expense that can be subtracted from taxable income, reducing the total amount a company owes in taxes. For employers, deductions help lower overall tax liability, making it essential to track eligible expenses carefully.

Homebase payroll can help businesses stay on top of deductible expenses, ensuring accurate financial planning and tax compliance.

How tax deductions work for businesses

Tax deductions lower taxable income, meaning businesses only pay taxes on their net income after deductible expenses. The IRS allows deductions for ordinary and necessary business expenses, including costs standard in a particular industry and essential for running the business.

Common tax deductions for employers

Businesses can claim a range of deductions, including:

Employee wages and payroll taxes: Salaries, hourly wages, bonuses, and payroll tax contributions (Social Security, Medicare, FUTA) are deductible.
Health insurance and employee benefits: Employer-paid health insurance, retirement plan contributions, and other benefits qualify as deductions.
Office expenses and rent: Rent or mortgage payments for business locations, office supplies, and utilities.
Business equipment and technology: Computers, software, and office furniture used for business operations.
Marketing and advertising costs are expenses related to business promotion, including digital ads, social media, and print marketing.
Professional services: Costs for accountants, consultants, and legal services related to business operations.
Business meals and travel: Certain meals (50% deductible) and travel expenses like flights, hotels, and rental cars.
Training and education: Employer-paid courses, certifications, and employee development programs.
Home office expenses: Some costs may be deductible if a portion of a home is used exclusively for business.

Payroll-related deductions businesses should track

Employers can also deduct payroll-related expenses, including:

Employer-paid payroll taxes (Social Security, Medicare, unemployment taxes)
Workers’ compensation insurance premiums
Employer contributions to retirement plans
Reimbursed business expenses (e.g., mileage, work-related costs)

With Homebase payroll, businesses can track these deductions automatically, reducing manual calculations and ensuring compliance. Try Homebase payroll today.

Tax deductions vs. tax credits: What’s the difference?

Tax deductions lower taxable income, while tax credits directly reduce the amount owed. Here’s how they work:

Tax deduction: If a business earns $100,000 and deducts $20,000 in expenses, it only pays taxes on $80,000.
Tax credit: If a business owes $5,000 in taxes but qualifies for a $1,000 credit, it only pays $4,000.

Both deductions and credits can help businesses reduce their tax burden, but they function differently in tax calculations.

Simplify tax deductions with Homebase

Tracking deductions manually can be time-consuming, but Homebase payroll makes it easier by:

Tracking payroll-related deductions automatically
Generating payroll reports for tax filing and compliance
Ensuring compliance with IRS and state tax regulations
Helping businesses prepare for tax season with accurate records

Make payroll tax deductions easier—get started with Homebase today.

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