When you run your own small business, you are always looking for new money-saving strategies to boost your bottom line. One of the ways you may be leaving money on the table, however, is by not taking some of the tax deductions for which you are eligible.
This oversight is easy to do because the tax laws are complicated, and finding the time to learn about what is and what is not a legitimate deduction – and what you have to do to document it– can be hard to find. As a result, many small business owners only think about taxes at tax time, and by then it is too late to do anything about the previous year’s records.
Instead of falling into this Catch 22, aim to keep tax planning in mind all year long. This strategy will make your record keeping easier, and it will increase your ways to save money.
Here is a list of deductions to consider for your small business. Be sure to talk with your accountant or tax professional to see how these will work for you.
Home Office Deduction
If you operate your business from your home, you are eligible for tax deductions. You only may claim space in your residence that is used regularly and exclusively for business purposes. Another requirement is that this space is the primary place of business for your company.
To deduct home office costs – including rent or mortgage, insurance, repairs and utilities– you can you claim the percentage of your home’s expenses that you use for business purposes or you can deduct a set amount per square foot of space. Discuss with your tax professional which is the best option for you.
Keep track of home expenses throughout the year and be prepared to document them with receipts.
Utilities
If you have a separate place of business from your home, your payments for water, power, trash pick-up and telephone bills at your office are all deductible as business expenses. A separate phone number dedicated for business makes bookkeeping easier, but if you have a phone number that you use for both business and personal calls, you may be able to deduct the part of your bill that is related to business calls.
Be sure to keep an itemized list of your monthly phone bill to document your business calls.
Business Use of Your Car
Just as you do for your home, you can deduct the use of your car for business purposes. You cannot write-off your regular commute to work, but you can deduct the portion of your other car expenses that are dedicated to your business.
You have two record keeping choices. You can add up all the costs associated with your car – such as gas, insurance, oil change, new tires, insurance – and deduct the appropriate percentage used for the operation of your business. Or you can use the standard mileage rate determined by the IRS each year to deduct for each business-related mile you drive.
Keep scrupulous records (date, total miles, tolls, parking and trip purpose) and then talk with your tax professional about which method will save you the most money.
Travel Expenses
Are you planning to attend a trade show or a professional organization meeting in another city? Do you need to visit clients in another state? Most business travel expenses, including airfare, hotel costs, cab fares and meals, are deductible.
According to the IRS, these expenses must be necessary and reasonable for your business, and you may be asked to provide receipts to back up these criteria.
Unfortunately, even if you work on your laptop and make business phone calls while on your personal vacation, a personal trip is not deductible. The purpose of the trip must be expressly for business.
Education
If you subscribe to business publications, attend professional seminars, maintain a reference library for your employees or take continuing education classes for your profession, you may be able to deduct these expenses.
Your travel expenses incurred from going to and from business-related classes and seminars are deductible as well.
Employee Expenses
Did you know you can deduct employee wages and the contributions you make to employee benefits throughout the year?
According to the IRS, you can deduct expenses that are more than 2 percent of your adjusted gross income. Health plans, educational assistance and life insurance for your employees are usually deductible. You also may be able to deduct contributions you make to your employees’ retirement plans.
Check with your tax advisor for current rules on these deductions.
Charitable Donations
You can write off donations your company makes to legally tax-exempt organizations. In most cases, the amount you deduct must be less than 50 percent of your adjusted gross income. Keep receipts of all of your donations, and check with your accountant to be sure.
Although time is money for the small business owner, you cannot deduct income you could have made while you were volunteering your time to a non-profit group. The IRS will consider only actual expenses incurred.
Business Bad Debt
It happens in every small business – a customer that fails to pay for services rendered. If you can prove that you have taken reasonable steps to collect on a business debt, you may be able to deduct that bad debt from your taxes.
Once again, well-organized record keeping will enable you to document this deduction. You also can deduct legal fees if you take that customer to court.
Equipment
Whenever you purchase new furniture, new machinery or new technology for your business, you may be able to deduct its cost. Retain records including its express purpose, purchase price, place of purchase and the date it was first put into service.
Additionally, you may be able to deduct the cost of repairs and maintenance required to keep your business equipment in good operating condition. Rules for these depreciation expenses can get complicated, so keep clear records and discuss this deduction with your tax advisor.
Professional Fee Deduction
Speaking of that tax advisor, did you know you can write-off business-related professional fees?
According to the IRS, you can claim professional fees that are necessary and directly related to the operation of your small business. Those deductions can include attorney fees and accountant fees.
For more ideas on tax deductions for your small business or for your other tax-related questions, here are some resources:
https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed
https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Deducting-Business-Expenses
https://www.irs.gov/publications/p334/ch08.html
https://www.sba.gov/starting-business/filing-paying-taxes
http://www.nfib.com/business-resources/tax-help/
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