Are You Making the Most of Your Small Business Tax Deductions?

It’s said that you have to spend money to make money when you run a small business. Fortunately, the Internal Revenue Service (IRS) allows you to write off some of what you spend pursuing business income.

Have you deducted all your eligible business expenses? Are you wondering if you’re missing important deductions? Take a look at these popular write-offs for small business owners.

If you think you may qualify for one of these deductions, consult your accountant or a tax professional or visit the IRS website.

Startup Costs

If you’ve just started your business, consider the expenses you incurred as you became established. This includes many possibilities, including research, legal fees, marketing materials, application fees for office rental space, inventory, and new computers.

You can deduct some expenses, while you must amortize the value of other expenses over a period of time. Visit the IRS website to get information on deducting business expenses.

You might be able to deduct some of the costs if you purchased new computers, desks, office chairs, or other large items. It’s important to save your records. Whatever you don’t deduct the first year, you might be able to deduct against business income in a future year.

Home Office

If you have space in your home used for business, you might be able to deduct related expenses if it is the “principal place of your business.” The IRS outlines two methods to determine how much you qualify for: the simplified option and the regular method.

The simplified option allows a standard deduction of $5 per square foot of the home used for business, up to 300 square feet. The regular method requires detailed record-keeping of actual home office expenses, which are then prorated based on the percentage of the home used for business.

Do you drive a fair amount to attend client meetings or work events? Try to keep track of any miles driven for business, and you might be able to deduct a portion of your expenses and toll and parking fees.

Consider the portion of your vehicle’s expenses related to your business. Say that you drive your vehicle 10,000 miles total and 5,000 miles for business; you might be able to write off some of your vehicle’s expenses, including tires and maintenance.

Food and Drink

The IRS typically allows you to write off 50% of your expenses for business meals, assuming they’re not “lavish or extravagant” and as long as the business owner or employee is present. Note that taxes and tips can typically be included in the cost of the meal, but transportation to the meal typically can’t.

To prove the validity of the expense, document the names of those attending and the purpose of the meeting along with receipts.

Identifying Audit Risks

The IRS selects returns for auditing randomly, but certain situations may increase your chance of being audited, and self-employment is one of them. Certain red flags may catch an auditor’s eye and further raise suspicions.

Be diligent about keeping thorough records to substantiate the deductions you claimed. To keep your expense records organized, keep a notebook handy or consider using an app that allows you to track expenses as they occur, such as Shoeboxed, XpenseTracker, or Expensify.

Keeping clear and well-organized records of your income and expenses can help make tax time easier and help reduce the risk of missing deductions. Consider this a basic but ongoing task to document your expenses accurately.

If you think you may qualify for one of these deductions, consult your accountant or a tax professional or visit the IRS website.

About the Author

Cathie Ericson is a freelance writer who specializes in small business, finance, and real estate.

All content provided herein is for educational purposes only. The information should not be relied upon as replacement for professional tax advice. It is provided “as is,” and neither the author nor Office Depot warrants the accuracy of the information provided, nor do they assume any responsibility for errors, omissions, or contrary interpretation of the subject matter herein.