As a small business owner, it is important to take every tax advantage you can get. Filing your taxes without investigating all the deductions available to you could be leaving thousands of your dollars in Uncle Sam’s pocket.
According to the Internal Revenue Service, “To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.”
You’re a business owner so at least a dozen expenses immediately spring to mind that fall under this umbrella. Make sure you are getting every deduction you can by reviewing this list of small business tax deductions that may not immediately come to mind but you should look into before you file your taxes:
Continuing Education Full-time students know they get a tax break but if you went to school in the year you are filing to take courses that pertain to your line of work, you can deduct expenses such as program cost, travel expenses and course fees.
Health Insurance If you have less than 25 full-time employees and you pay at least 50% of their health care premiums then the Small Employer Health Care Credit is for you and you need to take advantage.
Start-Up Cost On your business’ first tax filing you can deduct up to $5,000 of cost incurred before your opening day such as expenses from exploring business opportunities.
Cell Phone That thing you are on all day and night running your business. It is part of your business property and its cost should be filed accordingly.
Running your business out of your home? If so, based on the percentage of the entire home’s square footage used as space or office dedicated solely to your business, you can deduct expenses including mortgage interest, insurance, utilities, repairs, and depreciation.
Automobile Obviously, if a vehicle was acquired solely for business purposes, you already have it on your list of deductions. But if you have a personal car, and you use it in your business, you can use it as a deduction. You just have to divide your expenses based on actual mileage. Check with the IRS for current Standard Mileage Rates.
You can NOT deduct personal expenses but… If an expense is for something that is used for both personal and business you can divide the total cost and deduct the business portion. Here you need to be careful with your math so referring to Chapter 4 of IRS Publication 535 Business Expenses can give you the allocation rules you need to follow.
Other Deductions to Consider
- Retirement Plans (yours and your employee’s)
- Rent on any property you pay for your business to use that you do not own
- Interest on money you borrowed for business activities
- Taxes directly attributable to your business (federal, state, local and foreign taxes may apply)
- Insurance that is for your business or trade.
As a last note, in my experience there are few things on this earth more tedious than filing your own small business taxes but remember you don’t have to do it alone. There are two smart things you can do: Go to the source, IRS.gov, to search and reference the dozens of resources available or hire a professional and tell them which deductions you are looking for (and then deduct the tax preparation fees next year!).