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

 

It’s often said that you have to spend money to make money when running a small business. Fortunately, the Internal Revenue Service (IRS) allows you to write off some of what you spend while 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, 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. These may include research, legal fees, marketing materials, application fees for office rental space, inventory, and new computers.

You can deduct some expenses, while others must be amortized over time. Visit the IRS website for information on deducting business expenses.

You might be able to deduct costs for new computers, desks, office chairs, or other significant 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.

 

Business Mileage

Do you drive a fair amount to attend client meetings or work events? Track all business miles driven, as you might be able to deduct a portion of your expenses, including tolls and parking fees.

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

Food and Drink

The IRS typically allows you to write off 50% of your expenses for business meals, provided 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 validate the expense, document the attendees’ names and the meeting's purpose, along with receipts.

Identifying Audit Risks

The IRS selects returns for auditing randomly, but certain situations, such as self-employment, may increase the chance. Certain red flags may catch an auditor’s eye and 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 simplify tax time 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, a tax professional, or visit the IRS website.