You’re determined to get a head start on your business taxes, until your gaze falls on the heap of receipts, invoices and statements stacked up on your desk. Don’t give in to despair! There’s gold hidden in that pile.
With the right documentation, you can deduct many common business expenses from your taxes each year. Here are seven small business tax deductions to help you hang on to your hard-earned cash.
If a client owes you money and you’re unable to collect after a reasonable period of time, you may be able to deduct the loss. The IRS refers to this kind of loss as “business bad debt.” For the amount to be eligible for a deduction, it should have been previously included as income. Examples include loans to clients and suppliers, credit sales to customers or business loan guarantees.
2. Taxes and tax preparation fees
With the exception of federal income tax, you can deduct many of the taxes paid by your business, including all or a portion of your property taxes, franchise taxes and self-employment tax. If you hire someone to prepare your taxes, you can also deduct the amount as a business expense in the year it was paid.
3. Petty cash
Picking up bagels for your meeting or paying a toll on your way to meet a client may seem like nominal expenses, but they can quickly add up. Keep track of small purchases. At the end of each month, record the transactions using your accounting software or ledger.
Sponsoring a little league team is a great way to get your business name out in the community, and it’s also a way to claim small business tax deductions. For any activities that promote your business, such as advertising in your local newspaper or printing flyers or even baseball hats, you’re allowed to deduct reasonable costs.
5. Your car
If you use your car for business, you can deduct it as an expense on your personal taxes as long as you keep a log. The IRS offers two methods for calculating this expense: a standard deduction based on mileage, which as of 2017 is $0.535/mile; or actual expenses, including “gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments), attributable to the portion of the total miles driven that are business miles,” according to the IRS. Keep track of your expenses to decide which method will lead to the greatest deduction.
6. Home office
If your business is home based, and you use a room exclusively as your primary place of business, you can deduct the expenses from your personal taxes. The IRS offers two options: deduct the actual expenses of that space, determined by calculating a percentage of your utilities, rent and repairs; or use the simplified method, which is calculated by multiplying the square footage of the area by $5, with a maximum deduction of $1,500.
7. Retirement savings
It’s smart to save for retirement to prepare for the future, and it has the added benefit of being another tax deduction. As a business owner, you are allowed to deduct contributions made to your own retirement account, such as a simplified employee pension (SEP). You can also deduct contributions made to retirement plans for your employees.
April 15 doesn’t have to be a day to dread. A good accountant will ensure you’re maximizing your money, especially when tax laws change, but you can lessen the stress by keeping good records throughout the year so you can snag every single deduction you’ve earned.