With the end of the year approaching, it means it’s time to start preparing your year-end taxes. As a business owner, you may be overwhelmed by all the paperwork and planning that goes into tax preparation. While it may seem daunting, now is the perfect time to position yourself to pay a little less of your earnings to the government. As you get ready for the start of the new year, let’s talk about these 14 business and tax deductions you may be forgetting about.
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First and foremost, one rule of thumb for business deductions is that if it is necessary to survive as a business then it can be written off on your tax return. For example, an artist won’t be able to create artwork without canvases or paintbrushes so these are costs that can be deducted. On the other hand, getting your haircut, not so much. When costs are essential to running your business, then it can be deducted.
There are expenses that may be specific to the type of business you run, so here are some common deductions that are available for most business owners:
1. Home Office
Do you use your spare room in your house as a home office space? You may be able to deduct expenses for the business use of your home, including mortgage interest, insurance, repairs, and utilities. However, the IRS specifies that you can only claim this deduction if your home office is used exclusively for business purposes on a regular basis. That means if your home office also serves as a playroom for your kids, then you cannot claim this.
2. Rent
Do you rent a space for your business? The cost of renting a space for your business is deductible.
3. Office Supplies and Expenses
Whether it’s printer ink, sticky notes, or pens, traditional office supplies are fully deductible. If you had to purchase a new laptop, software or smartphone for your small business this year, then you can also write off the entire costs of these expenses as well.
4. Utilities
Electricity, phone, internet, water, heat, sewage, and any other utilities are fully deductible each year.
5. Advertising and Marketing
Anything you use to promote your business and bring in new customers is 100% deductible. This includes business cards, social media ads, commercials, billboards, and more.
If you have a part of your house used exclusively for business purposes, you may be able to deduct expenses for the business use of your home.
6. Repairs
Let’s face it, stuff breaks. From leaky faucets to broken toilets, it is inevitable that you will need to repair parts of your business property. If you end up needing to repair something or just want to perform regular maintenance to keep your business running efficiently, you can write off those costs on your taxes.
7. Legal and Professional Fees
You can deduct any legal and accounting fees charged by attorneys and accountants that are related to your business operations.
8. Car
As a small business, you may spend a lot of time driving in order to get things done. Whether it’s client meetings or transporting your merchandise, if you can prove that you use a vehicle for business expenses then you can deduct those expenses from your income. You can claim your deduction in the form of mileage or car-related expenses.
9. Travel
If you spend more time in airports than your own home, then this deduction is for you. Airline tickets and hotels for business trips can really add up but the good news is that you can deduct these as well. As long as there is a business purpose behind the trip and you hang onto receipts, you will be in good shape.
10. Meals
The costs of providing meals for your employees at the annual holiday party or company picnic are entirely deductible. However, when you have a meal with a business client only 50% of the cost can be deducted.
11. Employee Salaries and Benefits
If you have employees, freelance, or contract workers, you can deduct their salary, wages, bonuses and commissions as business expenses each year. In addition to their weekly paycheck, you can deduct your contributions to their retirement plans and other employee benefit programs well.
12. Insurance
Running a business is expensive, but so is protecting it. The cost of your insurance premiums for liability, fire, flood, and any other insurance you may have for your business is fully deductible.
13. Donations to Charity
You can donate money, property, or both, to any qualified charity and take a deduction. If a charity has obtained a determination letter from the IRS recognizing its status as a 501(c)(3) public charity, then it is qualified for tax purposes and donations to it are deductible. The only 501(c)(3) organizations that are automatically considered qualified organizations without a letter from the IRS are churches and other religious organizations.
14. Bad Debts
Many small businesses have a certain amount of “bad debts” each year. This is nothing to be scared of, this just means these were liabilities you were unable to collect on. Examples of bad debts you can claim could include funds you’ve loaned to others and the costs of unpaid purchases of goods or services.
