As a small business owner, you may feel overwhelmed taxes—but 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 could potentially put some green back into your pocket.
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 should consider taking advantage of immediately.
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 incurred throughout 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, detailed documentation is a must. 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 documenting their car’s mileage because the recordkeeping is simpler. But depending upon what type of vehicle you drive, logging actual expenses might be the more suitable route to take.
How are consumers supposed to buy your product or service if they’re not even aware of your business? Hello, advertising! It’s important to note the spectrum of advertising goes beyond conventional mediums such as TV, radio, and print. For example, the cost of hiring a graphic designer to create your logo can be an advertising expense. And paying for social media spots is also an expense. Of course, your expenses must be ordinary and necessary, but don’t be afraid to get creative with advertising.
3. Travel, Meals, and Entertainment
Frequent flyers are in luck. The cost of travel—airfare, hotel stays, rental cars, etc. —is fully deductible. When it comes to wining and dining clients, both at home and out of town, only 50 percent is deductible.
Pen collector? Sticky note lover? No matter what office supplies you have an affinity for, you can fully deduct the costs of them. According to the IRS, office supplies aren’t limited to paper clips and mouse pads. Expensive business assets—laptops, software, and other electronics—costing $2,500 or less can be expensed as well. If they are over $2,500, you must depreciate these assets.
5. Retirement Savings
When you’re self-employed, you have options to put your money into a few different types of retirement plans including a Simplified Employee Pension, or HR10 (aka Keogh Plan) pension. If you put away savings for your own retirement plan during the tax year, 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 qualifications. As long as your business had a net profit for the year and your insurance plan is established under your business, the amount you paid for your own and your dependents’ health insurance is fully deductible.
7. Home Office Deduction
If you have the luxury of a home office, take advantage of this deduction. However, there is a caveat. The room you conduct business in must be used solely for work and nothing else. So, unfortunately, your home office cannot simultaneously act as your bedroom or game room. Once you figure out what percentage of your home is used for business, you can deduct that percentage off your total home expenses, which include rent, utilities, insurance, and interest, among others.
8. Charitable Contributions
Charitable contributions not only benefit the receiver but also the giver. Whether it be cash or appreciated property, donations to a qualified organization can be deducted from your taxes. There are limitations, though, to your generosity. For cash contributions, you can only donate up to 50 percent of your adjusted gross income. If you donate appreciated property, it cannot exceed 30 percent 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 mobile phones, especially in our personal lives. So, if you take personal and business calls on the same phone, it’s crucial to keep detailed records of which calls were business. To avoid confusion, it may be best to add a second line or purchase a second phone exclusively for work.
10. Legal and Professional Services
It’s no fun making an appointment at a law firm and being charged hourly, but when tax season comes around, it’ll be all worth it in the end. Business-related fees paid to lawyers—as well as consultants, brokers, and appraisers—are tax-deductible. Yes, even using services like us or our friends at 1-800Accountant can mitigate the tax burden for your small business.
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