Tax season can be stressful, especially for small business owners managing busy schedules and complex finances. But with a few key tax strategies, you could be saving more than you think! Many small businesses miss out on valuable deductions each year that could reduce their tax burden significantly. In this month’s newsletter, we’ll spotlight the most commonly overlooked deductions and how you can make sure you’re taking advantage of them.
1. Home Office Deduction If you use part of your home regularly and exclusively for business, you might qualify for the home office deduction. This deduction allows you to write off expenses related to the portion of your home used for work, such as a percentage of rent or mortgage interest, utilities, and maintenance. The IRS provides two methods: the simplified method (a standard rate per square foot) or the actual expense method, where you calculate actual costs.
Tip: Ensure you’re only claiming areas used exclusively for business to avoid IRS scrutiny.
2. Mileage and Vehicle Expenses If you use your personal vehicle for business purposes, those miles are deductible. The IRS allows a standard mileage rate deduction or actual expenses related to the vehicle, including gas, maintenance, insurance, and depreciation.
Tip: Keep a log of miles driven for business. Mileage-tracking apps can simplify the process and create accurate records.
3. Start-Up Costs Many new businesses overlook this powerful deduction. Start-up expenses, including costs for market research, advertising, and legal fees, are partially deductible in the first year and can be amortized over subsequent years.
Tip: Track all start-up expenses carefully to capture every deduction possible during your initial years of business.
4. Professional Services and Education Fees paid to lawyers, accountants, and consultants are fully deductible, as are costs for courses and certifications that improve your business skills. Whether you’re attending conferences or pursuing additional training, these costs can lower your tax bill.
Tip: Retain all invoices and receipts from professional service providers and educational institutions.
5. Business Equipment and Office Supplies Purchases of items like computers, printers, furniture, and office supplies are often missed in annual deductions. Certain equipment may even qualify for Section 179, allowing you to deduct the full cost in the year of purchase rather than depreciating it over several years.
Tip: Consider timing purchases strategically at year-end to maximize deductions for the current tax year.
6. Advertising and Marketing All costs associated with promoting your business, from social media ads to print marketing and website development, are deductible. This includes advertising your business locally and online or even sponsoring local events.
Tip: Track all advertising and marketing expenses closely, including receipts and contracts.
7. Health Insurance Premiums (Self-Employed) If you’re self-employed, you may be eligible to deduct health insurance premiums for yourself and your family. This can be a significant benefit, but it’s often missed by small business owners not aware they qualify.
Tip: Speak with your tax professional to determine your eligibility and the best method for claiming this deduction.
8. Bad Debts If you’ve been unable to collect on invoices or loans from clients, you may be able to deduct them as bad debt. This deduction allows you to claim a tax write-off on income you reported but were unable to collect, provided you can show the debt was legitimate and unrecoverable.
Tip: Keep records of attempts to collect on the debt, including correspondence and records of payments not received.
Comments