Small business owners rely on tax deductions to offset the increasingly high cost of doing business. It can be difficult to keep up with the changing tax code and understand what deductions are available to you. Here is Holdsworth & Co’s list of the top 10 tax deductions available for small business owners:
- Home Office: Calculating how much of your home office-related expenses are tax deductible can be done by measuring your work area and dividing it by the square footage of your home. The percentage you measure is the fraction of mortgage, electricity, housekeeping, insurance, etc. that you can claim. Make sure your home office is actually a home office. Claiming your living room because that’s where your PC is can get you in trouble if the auditor comes to check on you.
- Auto Mileage and Maintenance: There are a couple of ways to calculate vehicle deductions: actual expenses or standard mileage rate (such as maintenance and gas). Use whichever method results in a larger tax deduction.
- Office Utilities: The power, water, trash and phone bills at your business office are 100 percent deductible under regular business expenses. When you have a phone line that has a mix of business and personal calls, deduct only the business related portion of the bill.
- Marketing and Advertising: As long as it’s directly related to your business, you can write off the cost of general advertising (yellow page ads, business card purchases, and so on), as well as costs for publicity like promotional expenses (such as sponsoring a youth sports team).
- Depreciation: If you purchase property to use in your business, generally you can’t deduct the entire cost in the year of purchase, but you can spread the cost over more than one tax year deducting a portion of it over the standard life cycle.
- Office Supplies: White Boards, Ink, Toner, paper, pens, thumbtacks, staples… Hang on to those receipts!
- Any Bad Debts: Your bad debt is also a deductible, but only if the amount owed to you was included in gross income previously.
- Professional Fees: Lawyers, accountants and other professional consulting costs are fully deductible.
- All Business Travel Expenses: Almost all business travel expenses are 100 percent deductible. These include hotels, airfare, car rentals, as well as other on-the-road expenses (like Wi-Fi, dry cleaning or cab fares). Eating out on the road is only up to 50 percent deductible.
- Business Dining out with colleagues on an everyday basis is not deductible, but if you bring along a prospective client or a current client, that dinner is 50 percent deductible. The same applies to going out for drinks or a show only 50 percent deductible, it does have to be within a business setting or happen before or after a business meeting.
Tax deductions for small business owners can be a maze not to navigate on your own. Holdsworth & Co., CPA’s are experienced business advisors that assist clients with all inclusive accounting needs. Contact us for a free consultation to see how your business can navigate easier.