A Cheat Sheet for Small Business Tax Deductions
Don’t Miss a Tax Deduction!
Being a business owner is not without its difficulties, from not having enough time in the day to accomplish your to-do list to feeling guilty about not being able to give each employee the attention they deserve. It can be a lot! Add tax season to the mix and it can feel like your only option is to run away screaming and pulling your hair out.
We don’t want that for you! In an effort to save your sanity and your hair, we thought a handy guide to small business tax deductions would help keep your tax season scaries at bay. Let’s start with a quick explanation of what a tax deduction is.
What Is a Business Tax Deduction?
A tax deduction sometimes called a write off is an expense that meets pre-determined IRS criteria that you can deduct from your taxable income which in return mitigates your overall tax obligation allowing you to pay a smaller tax bill.
Now that we’re super clear on what a tax deduction is, here are 15 deduction opportunities to reduce your taxable income and keep more money in your business bank account to spend on awesome endeavors like marketing or buying lunch for your deserving team.
15 Business Expenses That Can be Deducted
- Advertising: Think of launching a new website or designing your business’s logo.
- Business Insurance: You can deduct expenses for premiums, property coverage, liability coverage, employee health insurance, liability insurance, workers compensation, and more.
- Interest and Bank Fees: This expense category includes monthly service fees, overdraft charges, and payment processing fees.
- Depreciation: For example, when you purchase furniture or equipment like production machinery you can deduct their loss in value over the years of ownership and don’t forget bonus depreciation if you need to increase write-offs for this tax year.
- Interest: Interest paid on a loan or for a business credit card can be deducted from your taxable income if it meets certain criteria like you are legally liable for the debt.
- Legal and Professional Fees: Fees associated with professionals like lawyers, bookkeepers, accountants, and tax experts that are used in direct relation to your business can be deducted.
- Education: Education costs can be deductible when they support the maintenance of or improvement of skills required to run your business. A great example of this is if your profession requires ongoing education to keep a certification or license up to date, you can deduct that expense.
- Home Office Space: If you work from a home office space, you may be able to deduct a portion of your home expenses based on the size of the space or fees associated with maintaining it.
- Business Car Usage: If you use your car only for business, then you can deduct the entire cost of operating that vehicle. However, if you use it for business and personal functions, you can only deduct the costs associated with business-related usage.
- Moving Expenses: Businesses can deduct the cost of moving from one location to another including business equipment, supplies, and inventory.
- Rent: The cost of renting office space or equipment is a deductible expense.
- Salaries and Benefits: Salaries, as long as they are reasonable, and benefits like paid vacation time can be deducted on your tax return.
- Telephone and Internet Expenses: The cost of your cell phone and Internet for conducting business, as long as they are integral to operations (this is the 21st century!), are deductible.
- Travel Expenses: Necessary travel costs for travel outside of your business’s operating region are deductible.
- Business Meals: Be careful with the specifics of this category, but generally speaking you can deduct 50% of qualifying food and beverage costs that directly relate to the cost of doing business or are for employee meals. Also, full company meals and functions like a Christmas party are 100% deductible, so be sure to keep detailed records of these types of expenses.
Obviously, this is not an exhaustive list of business deductions, as it would be impossible to take into account every type of business and industry and the criteria for each deduction, but this is a good cheat sheet to get you thinking along the lines of how you can save money when it comes time to prepare your tax return. The best way to determine all applicable deductions for your business is to work closely with your tax accountant come tax season and throughout the year.
In addition to addressing deductions here are 7 more considerations to speak with your tax accountant about when discussing annual tax planning.
- Reimburse expenses using an accountable plan
- Make smart tax elections
- Don’t overlook carryovers from prior tax years
- Use tax-free ways to extract income
- Shelter profits in retirement plans
- Consider restructuring your business
- Do year-end planning to reduce your tax liability
A Note About PPP Loans
On the subject of deductions, we want to share a quick side note pertaining to the 2020 tax year in reference to business owners who have received a paycheck protection program loan. Since the topic of deductions related to expenses paid for with a PPP loan has been up in the air until very recently we’d like to reiterate the recent clarification provided by the Coronavirus Response and Relief Supplemental Appropriations Act (Act) of 2021. The Act officially outlined that forgiven PPP loans will not be included in taxable income and are completely tax-exempt. And deductible expenses like payroll, rent, and utilities that have been paid for using funds from a PPP loan can be written off like business expenses under normal circumstances.
Deduct Expenses Like a Pro
With all 15 of these tax deductions on your mind, you’re probably chomping at the bit to get your business’s tax return started. And we don’t blame you! The earlier you can begin gathering documents and providing information to your tax advisor the better, especially since the business tax return deadlines are coming up quickly. The deadline for partnerships (LLCs) and S-Corporations is March 15th and the deadline for C-Corporations and individual returns is April 15th.
If you have yet to engage with a tax accountant, we’d be happy to customize a tax quote and make specific recommendations to prepare and file your business’s taxes. Simply book a consultation and we’ll help you with the rest. AND if you’re ready to receive a custom tax quote as soon as possible, all you have to do is fill out this form and we’ll get back to you in a few business days.