When you start a small business, you may feel overwhelmed by taxes. However, the Internal Revenue Service (IRS) does offer some breaks—or deductions—on business expenses to help lower your tax bill. If you keep good records throughout the year, and your business expenses are ordinary and necessary, you may have a chance to get a good return.
There are countless deductions to choose from, and you should consult a certified public accountant for guidance—like our friends at 1-800Accountant—but here are the top 10 deductions you can take advantage of now.
1. Car and Truck Expenses
Whether your line of work requires you to be a road warrior or take the occasional road trip, this deduction is essential. As long as the vehicle you drive is exclusively for business, you can deduct car-related expenses that build up during the tax year. If you use your vehicle for personal and business purposes, you can only account for your business-related usage. As a result, you must document everything. The IRS offers two ways to account for your car-related expenses: You can track your vehicle’s total mileage, or actual expenses (repairs, gas, insurance, repairs, etc.). Most people prefer to record their car’s mileage because this is more simple. But depending upon what type of vehicle you drive, logging actual expenses might be the better route to take.
How do customers buy your product or service if they do not know about it? Hello, advertising! These days, advertising also includes more than TV, radio, and print. For example, the cost of hiring someone to create your logo is an advertising expense. And paying for social media spots, like boosted Facebook posts, is also an expense. Of course, your expenses must fall within reason, but don’t be afraid to get creative!
3. Travel, Meals, and Entertainment
Frequent flyers are in luck. The cost of travel—airfare, hotel stays, rental cars, etc. —is fully deductible. However, when it comes to wining and dining clients, only 50% is deductible.
Pen collector? Sticky note lover? No matter what office supplies you choose, you can fully claim those costs. According to the IRS, office supplies include more than just paper clips and mouse pads. When you start a small business, you can also claim costly purchases less than $2,500, such as laptops, software, and other electronics. However, if they are over $2,500, you must depreciate them.
5. Retirement Savings
When you start a small business and are self-employed, you can still save for retirement. If you put your money into a retirement plan, including a Simplified Employee Pension, or HR10 (aka Keogh Plan) pension, you can deduct your contributions. Do you have employees? You’re allowed to deduct the contributions you make to their plans, too.
6. Self-Employed Health Insurance Deduction
It’s no secret that health insurance isn’t cheap, but Uncle Sam will pick up the tab if your business meets a few criteria. As long as your business had a net profit for the year and your insurance plan is listed under your business, the amount you paid for your own and your dependents’ health insurance is fully deductible.
7. Home Office Deduction
If you choose to start your small business from a home office, you can claim this as a deduction. However, the room you conduct business in must be used for work and nothing else. Unfortunately, your home office cannot also act as your bedroom or game room. Once you figure out what portion of your home is used for business, you can deduct that amount off your total home expenses, which include rent, utilities, insurance, and interest.
8. Charitable Contributions
Charitable givings not only benefit the receiver, but also the giver. Whether it is cash or property, donations to a qualified organization can be deducted from your taxes. There are limitations though. For cash contributions, you can only donate up to 50% of your adjusted gross income. If you donate property, it cannot exceed 30% of your adjusted gross income.
9. Phone Calls
You can deduct the cost of calls you make for your business. These days, we are inseparable from our phones. So, if you take personal and business calls on the same phone, you must keep detailed records of which calls were business. To avoid confusion, you can add a second line or purchase a second phone only for work.
10. Legal and Professional Services
It may seem annoying to pay a lawyer or accountant billable hours, but when tax season comes around, you can save big. Lawyer fees for your business—as well as fees for consultants, brokers, and appraisers—are tax-deductible. Yes, even using services like us or our friends at 1-800Accountant can relieve the tax burden when you start a small business.
1-800Accountant serves the accounting needs of start-ups, entrepreneurs, and small businesses by providing extraordinary service at a great price. They build relationships based on integrity, responsiveness, and solidarity, with the goal of making every client a client for life.
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