Small business owners can write off many routine business expenses as tax deductions. Business tax deductions work by lowering your taxable income, thereby reducing the amount of tax you owe.
According to the Internal Revenue Service (IRS), no expense can be deductible unless it is both “ordinary and necessary.” An ordinary expense is one that’s common and accepted in your type of business. For example, if you own a restaurant, the cost of food and other restaurant supplies are an ordinary expense. A necessary expense is one that’s helpful and appropriate for your business such as travel expenses to attend an annual industry convention.
Take Advantage of these Tax Deductions
There are numerous tax deductions available to small business owners. Here are just a few of the tax deductions you may be able to take advantage of.
- Start-Up Costs
Currently, the IRS allows businesses to deduct up to $5,000 of certain start-up expenses in the year the business begins (subject to limitations), even if the expenses were incurred in the prior year.
In addition to eligible start-up costs, corporations and partnerships are allowed to deduct up to $5,000 of organizational costs in their first year of activity. These include legal fees, filing fees, and other costs directly related to the formation of the partnership or corporation business entity.
2. Business Meals
As a small business owner, you can deduct 50% of qualifying food and beverage purchases. To qualify, the meal needs to be related to your business and you need to keep appropriate documentation, including the date and location of the meal, names of the people you dined with, business relationship, and the total cost of the meal.
3. Work-Related Travel Expenses
Expenses related to business travel can be written off at tax time, including airfare, hotels, rental car expenses, meals, and more. To qualify as work-related travel, certain conditions must be met:
- The trip must be necessary for your business
- The trip must require travel away from your tax home
- You must be traveling away from your tax home for longer than a normal workday and it must require you to sleep or rest en route.
4. Work-Related Vehicle Use
If you use your vehicle strictly for work-related purposes, you can write off all costs associated with operating and maintaining it. If your vehicle is used for both personal and business reasons, you can only deduct costs that are related to the business usage of the vehicle.
You can claim the mileage you use for business driving, either by deducting the actual miles driven for business, or by using the standard mileage deduction of 57.5 cents per mile driven.
5. Home Office Expenses
If you use a portion of your home exclusively and regularly for business purposes, you can deduct certain expenses for the business use of your home. These expenses may include percentages for rent, mortgage interest, utilities, insurance, and other expenses. To meet the exclusive use requirement, you must use a designated area in your home for business, and business only.
6. Office Supplies
Office supplies including paper, pens, printers, computers, and work-related software are deductible. Work-related postage and shipping costs are also often deductible.
The cost of rent for your business is fully deductible, whether it’s a storefront, shop, or office space. You can also deduct the rent you pay for equipment or other assets used in your business.
8. Telephone and Internet Services
Telephone and internet services that are required to operate a business are considered deductible expenses. If your cell phone and internet connection are used for personal and business use, only the percentage of the cost that is allocated to your business is deductible.
9. Subscriptions and Professional Dues
Dues paid to professional organizations, trade associations, and chambers of commerce are deductible. Dues paid to country clubs, airline clubs, and similar memberships are not deductible.
10. Advertising and Marketing Expenses
The cost of ordinary advertising is fully deductible, regardless of the type of media you use. So, whether you advertise in your local newspaper or on social media sites, the costs are deductible. Advertising costs also include business cards and brochures.
11. Professional Services
All professional fees that are necessary for the operation of your business, including legal, payroll, accounting, and bookkeeping services, are deductible.
These are just a few of the tax deductions available to small business owners. The key to maximizing allowable deductions is to keep all business receipts and maintain clear records.
Partner with a Professional Tax Accountant
An experienced tax professional can help you identify tax saving opportunities both now and in the future. At Orcutt & Company, we keep up-to-date with changes in tax laws and are always looking for ways to save our clients money. We offer prompt, efficient preparation of all types of returns including tax filings, multi-state taxes, and individual income tax returns.
Orcutt & Company is a full-service financial solutions provider. Our comprehensive service plans are designed with the small business owner in mind. We can handle your bookkeeping, payroll, corporate and personal taxes in one office, with one point of contact. We look forward to working with you.