For small businesses, especially those who file estimated taxes on a quarterly basis, tax time is always just around the corner.
The laws often change and can be challenging to interpret, but over time, it’s remained true that it’s possible to deduct nearly any expense that relates to your business. With such an array of possibilities, many deductions can be easily overlooked, so we’ve put together a list of both common and often forgotten small business tax deductions so you don’t miss anything next time around.
Most business owners know about deducting current expenses, but you can also deduct capital expenses, or the costs of getting your business started. You can deduct up to $5,000 the first year. Remainder capital expenses can then be deducted in equal amounts over the following 15 years.
The Home Office
Having a dedicated work-only space in your home will get you the home office deduction (so long as it really is for work only), but it can also lead to a web of other related deductions, including:
- Increased auto deductions: While work commutes aren’t deductible, traveling from your home office to a work-related destination is.
- Home renovations. Certain home improvements, from landscaping to driveway repairs, may also be deductible so long as the part of the home being worked on is used mostly for business.
- Homeowner’s insurance. Depending on the percentage of your home that’s used for business, you can write off that percentage from your home insurance. This goes for other things like mortgage, rent, and utilities as well.
Speaking of insurance, there are other premiums you can write off in addition to homeowner’s insurance.
- Health. Health insurance can be a burdensome expense for small business owners and those who are self-employed. Fortunately, all of your health contributions are tax deductible. Simply track your payments and file them as an itemized deduction at the end of the year. This also eliminates the need for an HSA, since your health expenses are paid for tax-free.
- Auto. This is similar to how you calculate the home insurance deduction. The percentage you use the car for work (measured in mileage) is the percentage of your car insurance you can deduct.
While the IRS will penalize employers who fail to put workers on payroll, there are tax benefits to hiring the following individuals:
- Freelancers. With a relatively new program, the IRS will only charge 1/10th of the taxes for one year for 1099 freelance employees — interest, penalty, and audit-free.
- Veterans. If you hire a veteran who has been unemployed for more than 4 weeks, you’ll qualify for a deduction. If they have been unemployed for for 6 months or more, you’ll qualify for up to 40% up to the first $14,000 of wages, for a maximum of $5,600.
Travel & Transportation
There are a number of deductions that can fall under this category, including:
- Mileage. To make figuring this deduction out easier, simply keep a mileage log that tracks all work-related travel.
- Trips. If you’re traveling anywhere for business purposes, you may be able to write off the entire trip. Again, the key is to keep track of all business-related dealings while away and to make sure your income outweighs your claims.
If you take out a personal loan or use a credit card to finance a business purchase, the interest is tax-deductible. It’s crucial that you keep records to show the funds were used for business purposes.
The services you use to conduct your business come with fees that are tax deductible. These services can include anything from PayPal money transfer fees to the percentage of your Internet/bill you use for business.
Working Lunch, etc.
Things like catered office meetings, working lunches, and other forms of entertainment where prospective clients and customers are present can be deducted (50% of the tab). Make notes on the receipts or bills detailing the business purpose.
If you sell goods that have yet to be paid for, you can deduct the cost. You cannot do this, however, if you offer a service.
If you spend money on improving the skills required for your current work, you may be able to deduct those kinds of education expenses.
The most important thing to remember is to document everything and become an expert record-keeper. So long as you earn more than you deduct annually, you’re in good shape.