When it comes to filing taxes, there are many ways small businesses can save money. Small business owners can take advantage of different tax deductions and place their saved dollars back into their business. Whether you work from home, an office, or a vehicle, here are some ideas to consider. Added together, these costs can lead to big savings!
Travel Tax Deductions
If you use a vehicle for your work, than you can include it as an expense in your taxes. Perhaps you have a delivery van, use your car to run errands, or have to travel to different locations for work . It is important to keep track of the miles used, gas, maintenance, parking, and tolls. You can deduct your exact expenses if you have kept track, or use the IRS standard mileage rate. The standard mileage rate is currently 54.5 cents per mile. One method may provide a higher deduction than the other. Just be sure to keep business expenses separate from personal use expenses.
There are small tax deductions available for expenses of a work related trip. Expenses include airfare, meals, car expenses, and shipping supplies. For the trip to qualify for deductions, you must be away from your regular workplace for longer than a day, and require overnight accommodations.
Location Tax Deductions
If you have a home office that is solely dedicated to your work, then you can deduct this space in your taxes. The deduction is calculated by the percentage of space used in your home. The requirement is for an entire room to be dedicated to the office, not just a table or corner. The percentage of space your office uses from your home is the percentage of direct and indirect expenses you can deduct. Examples of expenses are rent, utilities, insurance, and maintenance. If you work in an office outside of home, the rent of that space is also deductible.
You can deduct all mortgage interest if your business owns it’s own building. Even small food stands qualify.
Moving expenses may be deducted from your taxes if you were required to move more than 50 miles to start your business. Specific costs that may qualify include packing, transportation, travel, utility, and service connections. Security deposits and meals paid for throughout the move are not deductible. For these deductions to qualify, you must remain employed at the business for at least 78 weeks out of the following two years.
Service Tax Deductions
If you hired a professional service to help your business, you can deduct the cost of service. Some services a business owner may need include attorneys, consultants, accountants, and planners. Make sure the fees are reasonable and necessary, then check with an IRS professional for legitimacy.
Small business deductions are available for entertaining employees and clients. The entertainment must take place in a professional setting and business is discussed during this time. Typically, up to fifty percent of meal costs can be deducted given that at least one employee was present and the meal was not considered lavish. Up to one hundred percent of recreational or social events and activities can be deducted. Meals that are provided in a cafeteria or a team dinner may also be deducted.
Labor produced by independent contractors and freelance workers is eligible for deductions. This could be for renovations, construction, or repairs. Form 1099-MISC must be issued to any worker that earned $600 or more during the year.
Loan Interest & Debt
You may file a small business tax deduction for interest built on a business credit line. However, if you build interest on a personal loan that you use towards your business, it is more difficult to file. Check with an IRS professional to be sure you filed correctly. Bad debts are also tax deductible if you advanced money to an employee or service without receiving the goods or payment contracted. Bank charges are also deductible, such as fees for holding a business account and ATM service fees.
Insurance premiums paid for your business coverage are deductible. The insurance coverage must be ordinary and necessary to qualify. Accidents and health, theft, automobiles, and malpractice are included. However, not all insurance is deductible, such as life insurance.
Disaster and Theft
If your business has suffered from theft or loss from a natural disaster, you can deduct losses that weren’t covered by insurance.
If your business sells goods, then you may deduct the goods that you have no yet been paid for.
Work related education services such as seminars, training, and workshops may qualify for deductions if their purpose is to improve job skills. They are especially likely to qualify if they are required to maintain a professional license.
Advertising and Marketing
Most advertising and marketing expenses for small business qualify for deductions. This includes websites, business cards, flyers, commercials, print, and billboards. The main exception to this deduction is political advertising, which is usually not deductible.
Some tangible donations to charity qualify for deductions. Money, property, and supplies are considered proper donations and must be made to a recognized charity that qualifies with the IRS.
If you hire any type of cleaning service to work for your business then you can deduct the cost. If cleaning is a part of the employees job, this does not count as a cleaning service. It must be an outside company.
Tools and Resources Tax Deductions
Depreciation tax breaks currently allow you to deduct forty percent of your costs upon purchase of capital equipment. To meet the requirements, the assets must follow the IRS guidelines. The guidelines state that the assets must be used in the business or used to produce income, the useful life must be longer than one year, and it must wear down or lose value over time. Land, inventory, and heating and cooling units do not count as assets.
Office Supplies and Expenses
You can deduct conventional business supplies and office expenses as long as they are used within the year of purchase. You can often also deduct the costs of shipping, postage, and delivery service. So be sure to save your receipts and keep track of your business expenses.
Furniture, Equipment, and Tools
When purchasing new furniture and equipment for your business, you have a choice in how it gets deducted. One option is to deduct the whole cost in the tax year the purchase was made. The other option is to depreciate the purchases over a seven year period. Specific regulations will determine with method is appropriate for your purchase so be sure to check with the IRS. Equipment that is rented instead of purchased is also tax deductible. Tools are considered separate from equipment, such as cooking utensils, and are deductible too.
All software used to run your business such as the POS software is now tax deductible. In the past, it was just depreciated over time.
If you recently opened your business, you may be eligible to deduct up to $5,000 in startup costs. Expenses such as marketing, advertising, travel, and training costs all qualify if they occurred prior to the business opening to customers.
Inventory is only sometimes deductible when treated as supplies and cash based accounting is used. For example, a pizzeria buys toppings as inventory, but sell the toppings as products.
Intellectual property such as licences and trademarks can often be deducted. Licencing fees are usually considered capital expenses and therefore are depreciated over multiple years. Trademarks can be deducted within the same year.
If you made energy efficient changes to your place of business such as solar hot water heaters, solar electric equipment, or wind turbines, you may qualify for a deduction. These improvements can be claimed with Form 5695.
Phone and Internet
Phone and internet expenses used for your business are deductible as long as they are not for personal use. If used for both business and personal, then you can only deduct the percent of usage used for business.
Employee Tax Deductions
Salaries and Wages
You may not be able to deduct draws and income from your business if you’re a sole proprietor or L.L.C. But salaries and wages paid to your employees are deductible. Bonuses, meals, lodging, and the payroll software are also deductible. This applies to both part-time and full time employees. Employee commissions are also tax deductible.
Work Opportunity Tax Credit
You may be eligible to file for the Work Opportunity Tax credit if you have hired military veterans or someone who was unemployed long-term. The benefit is forty percent of the first $6,000 in pay.
Benefits offered to your employees are tax deductible as well. Contributions to health plans, life insurance, pensions, profit sharing, retirement contributions and education programs are all deductible. Keep track of all contributions made to each employee. Child care provided to employees for their families also qualifies for deductions.