5 Tax Deductions to Consider Claiming as a Small-Business Owner
When you’re a small-business owner - or anyone else, for that matter - every extra dollar counts. As the old saying goes, it takes money to make money, and from inventory management to servicing out-of-order equipment, cash flow is a crucial element to keeping a company up and running and ready for any possible outcome.
With this in mind, the last thing many small-business owners want to do is deal with taxes. While they may be required and are one of life’s few guarantees, virtually everyone wants to retain as much of their earnings as possible. You can maximize your refund by taking advantage of small-business tax deductions. According to the Small Business Administration, more than 99% of all the companies in the U.S. can be classified as small. So the chances that you’re eligible for the following deductions are quite good. Here are a few of the tax breaks you may want to consider leveraging before you submit your return to the IRS this April:
Not long ago, working from home was a luxury almost entirely confined to those who ran their own businesses. Not anymore, thanks in large measure to online computing. Indeed, since 2005, Americans who telecommute on a regular basis has surged 173% since 2005, according to the most recent statistics available from Global Workplace Analytics. Additionally, around 4.7 million Americans work from where they live 50% or more of their workweek.
If you happen to be one of them, you may be able to deduct some of the expenses you accrue from your tax obligations. These include utilities, office supplies, rent and mortgage payments, assuming you’re a homeowner.
At the same time, though, there are a number of caveats and provisos to home office tax deductions. For example, the write-offs you’re eligible for are space-based, meaning there needs to be a location within your household where the activities conducted there are devoted solely to business-related activities. It doesn’t necessarily need to be an entire room, but at least a portion of it, which must be measured in square feet.
Additionally, if you have employees who also frequently work from home, they may no longer be able to write expenses after the passage of the Tax Cuts and Jobs Act. Be sure to speak with your tax professional to get clarity on the home office deduction and whether your best route is the original home office deduction method or the simplified one. Otherwise, take a look at some of the specifics about what qualifies as business use of your home - such as how “exclusive” versus “regular” mean slightly different things - at IRS.gov.
2. Office supplies
When people think of office supplies, writing implements like pencils, pens, paperclips and rulers come to mind. But you don’t necessarily need an office to take advantage of this deduction. The term supplies generally refers to instruments that are used exclusively for business-related purposes, whether they be plastic spoons for your ice creamery or plastic bags for your farm stand. The key here is to ensure you retain all the receipts from the purchases you make. If you don’t have a hard copy, check your email, as more businesses are opting to send receipts and payment confirmation via online to reduce paper. Also, bear in mind that the purchase date for these items must be in the same year you’re filing taxes.
3. Vehicle expenses
Do you have a car, truck or van you or your employees drive for delivery runs or cleaning up the farm. You may be able to write off some of the expenses incurred in those efforts. These costs include gasoline, parking meters, highway and bridge toll booths and even some related to wear and tear (maintenance). Here as well, it’s important to keep copies of your vehicle expenses so they can be validated by the IRS. You may also want to talk to your tax professional to see whether taking the standard deduction or itemizing is best for your situation. If you itemized in 2018, the standard deduction may be your best bet this past year, depending on what your business-related activities and expenses for your automobile involved.
In an economy that’s increasingly interconnected, your work may not entirely take place within the country’s confines. They may be north of the border or on the other side of the planet. Wherever your business brought you in 2019, you may be able to deduct some of the costs you accrued along the way. These expenses may include airfare, hotel accommodations and car rentals. As per usual, keeping copies of those transactions is central to making this deduction a reality.
Some of the biggest business deals aren’t conducted within the boardroom but at the dinner table - fine dining establishments, in particular. Good food takes time - and money, especially when you’re the one paying the tab for meals and drinks.
Unlike other write-offs - which are 100% deductible - you can typically cut 50% of the cost from your tax bill. There may be some stipulations, however, as there’s usually a cut off for how high a meal’s tally can be. The same goes for “entertainment-related expenses,” as some may not be deductible at all or only partially deductible. Again, speak with a tax expert if you’re unsure.
What other deductions are available?
These five are just the tip of the proverbial iceberg when it comes to maximizing your refund through write-offs. From furniture, employee benefits, salaries and professional services, they’re all designed to help you keep more of the money you rightly earned, funds that can further your business goals.
If you’re unsure as to whether an expense is for business purposes, talk to a professional. Otherwise, use the “ordinary and necessary rule.” This means that if the purchase is required for the services or products you render, in short “ordinary and necessary,“ the odds are good that it’s at least partially deductible.