By: Amy Smith
Are you making the most of your small business’s tax situation? Unless you are completely confident that you are maximizing your business deductions, you cannot answer “yes” to this question.
Small Business Tax Deductions
A tax deduction is an item that you can subtract from your taxable income. Claiming deductions on your business tax return reduces the amount of income that you use to calculate the tax you owe. They are a key tax savings vehicle for business owners.
Different deductions exist for individual and business taxpayers. For small business owners, there are two areas to consider when determining your tax deductions. Firstly, there are costs directly related to running your business; secondly, there are personal deductions that small business owners have access to. Here is a quick look at some of the more well-known business tax deductions:
- Contract labor
- Business use of your car
- Legal and professional fees
- Salaries and benefits
- Home office expenses
- Business insurance
- Travel expenses
- Business meals
- Advertising and promotions
- Business interest and bank fees
- Pass-through deduction
Lesser-Known Tax Deductions
Today, we want to spend some time making sure that you are aware of some of the lesser-known tax deductions available to small business owners. We hope that you find something on this list that results in a positive impact to your tax situation!
- Start-up Fees – The costs associated with establishing your small business are an important tax deduction. Up to $5,000 in capital expenses can be deducted for your first year in business. After that, any remaining capital expenses associated with your start-up can be deducted over the course of the next 15 years. There are limitations on this deduction if start-up costs exceed $50,000.
- Charitable Contributions – Most people are already aware that personal charitable contributions can generally be deducted from individual tax returns. However, fewer taxpayers realize that businesses can also claim a deduction for their donations. Owners of partnerships, limited liability companies, and S corporations that make charitable contributions can pass the deduction through to their individual tax returns. And this isn’t just a deduction for monetary donations—small businesses can take a deduction for equipment or other items donated as well.
- Moving Expenses – You can deduct the money you pay to have business equipment, supplies, and/or inventory moved from one business location to another. Make sure that you maintain thorough records of all the moving costs that you plan to deduct.
- Rent Expenses – Businesses that rent either their location or equipment can deduct those rental payments. You should be aware, however, that deductions for your home office do not fall into this category.
- Telephone and Internet Expenses – The costs associated with purchasing telephone and internet services for your business are deductible. Keep in mind that if your phone or internet service is used for both personal and business reasons, the entirety of the cost is not deductible. You may only deduct the portion allocable to business use. Be sure to maintain records that you can use to justify the percentage of the cost that you allocate to your business usage.
The Importance of Thorough Recordkeeping
You probably noticed that a number of these bullet points include a caveat about keeping thorough records justifying your small business deductions. In the event that the IRS asks for proof of your deductions, having quick and easy access to your supporting evidence will make your life much easier—and less stressful!
We highly recommend that you track your deduction information year-round in order to ensure that you remain on top of your potential deductions and to make the path before you as smooth as possible when tax season rolls around. If this aspect of monthly accounting—or any others—are not your favorite thing to do in your spare time, please consider partnering with an accounting professional who can expertly guide you through the process. Consider reaching out to HeimLantz today to learn how we can help!