Small business owners know that come tax season, every deduction counts. But few know just how much they can save with the right deductions. Writing off business expenses helps mitigate the overwhelming cost of running and managing your own business, but it can be a complicated affair. Paying attention to the fine print and knowing which small business tax deductions you’re eligible for could end up saving you hundreds of dollars a year. But where to start?
The IRS has a general rule to follow when deciding what can be deducted and what can’t be. If something is ‘Ordinary and Necessary,’ it can be written off. These are necessary expenses that occur while running a business, such as office supplies, gasoline and utilities. It’s a great jumping off point when determining what you can and can’t deduct.
Car, Truck and Vehicle Expenses– Vehicle expenses are one of the first deductions you should take. Nearly everyone uses a vehicle in some capacity while running their business, whether it’s through deliveries, client meetings or running errands. Be sure to keep records of your usage throughout the year. During tax season, you can either deduct your actual expenses such as gas, maintenance and tolls, or use the IRS’ standard mileage rate of 58 cents per mile.
Salaries and Wages– Payments to employees are often considered a deductible business expense, including salaries, wages, bonuses and commissions.This even extends to freelancers and contract workers. You can also deduct any contributions you make to employee retirement plans and other benefit programs.
Qualified Business Income- In 2018, the Tax Cuts and Jobs Act allowed most taxpayers and small-business owners to deduct 20 percent of their income on their taxes. While there are stipulations, such as an income limit on higher income businesses, this is still a huge deduction to take.
Home Offices- If you have a home office, you’re in luck! If you run your own business and report your income on Schedule C you may be able to deduct your home office. This is a particular deduction though, and it’s important to understand what qualifies as a home office. It must be your principal place of business, and it needs to be exclusively used as a home office.
Rent- Similarly to a home office, rent is fully deductible. Whether it’s a storefront, boutique, office or factory, don’t forget about this deduction come tax time.
Utilities- Utilities are another deduction that often gets forgotten. Electricity, cell phones and secondary landlines all count, so take advantage of it.
Professional Services- Small business are just that– small. They don’t have in house accountants or other professionals, but that doesn’t mean that they miss out on that deduction. If you hire a professional such as an attorney or consultant, their total cost is deductible.
Office Supplies and Expenses- Running your own business is expensive. Few people understand just how much money goes into it. Fortunately, a lot of that is deductible. From new chairs, to napkin holders. You have the choice of either deducting the entire cost for when it was purchased, or depreciate it over a seven year period. Just be sure you’re following the regulations the IRS has.
Travel- You’re able to write off the full cost of transportation and lodging for any travel that you or your staff members do. Naturally, you’ll need to be able to substantiate any claims, but just keep track of your spending and it shouldn’t be an issue.
Software- You’re able to fully deduct the cost of business software that you use daily. Whether that’s a POS system for a small restaurant, or accounting software, don’t forget to get this deduction.
If you have more questions about writing off business taxes or are ready to schedule your free 30-minute consultation, please don’t hesitate to contact us now.