Don’t you neglect to deduct business expenses on your tax return?
You may be able to leave money on the table. Whether you are an established entrepreneur or just setting up shop, you can save thousands of dollars in tax deductions. So what expenses are eligible? To get a tax deduction, business expenses must be necessary and typical of the type of business you run.
There are exceptions to the rule. You cannot write off speeding or parking tickets. But don’t let this stop you from saving serious money on your tax return. Place these dollar bills back in your wallet by adding these frequently overlooked business expenses to the list.
1. Cost of keeping your business running
When maintaining your business, buy office supplies and advertising. But did you know that you can also write off equipment repairs, business calls and office furniture payments?
However, there are limits.
- If your business goes down, you can’t deduct the cost of exploring a business opportunity. But you can deduct costs for products, materials and supplies in your warehouse.
- Also, you cannot completely deduct the cost of starting your business. Instead, you can deduct up to $ 5,000 the first year and write off any remaining starting costs on a regular basis over 15 years.
- Every cent you invest in your business is called either a capital expense or a running expense.
Capital expenditures are your business asset purchases, long-term equipment that continuously improves your business in subsequent years. As capital expenditures are not usually worn after the first year, these are depreciated and deducted over a period of time.
Current expenses are charges for equipment or services used every day to maintain a profitable business. They are usually used up in the first year, so you can deduct the total running expenses from your tax return.
- Repairs that add value to the equipment, extend the service life, or adapt a product to another use can be deducted from your tax return.
- Advertising fees for creating promotional materials such as business cards and print, radio, yellow pages and banner ads are fully deductible.
- If you regularly use the phone to call clients or customers, you can deduct fees that are relevant to your business.
However, be aware: If you try to mask personal purchases by claiming them as business expenses, you may be in deep waters when your tax return triggers an audit.
2. Fees and rentals at home office
Do you work from home? Subtract a portion of rental, insurance, and utility payments if you have an office dedicated to business.
There is a downside. Your office should be for business purposes only.
It’s fine to work in your slippers, but you can’t take a home office deduction if your bed is in the room unless your office is cut off. You also can’t let your kids play Legos in your workspace. And you certainly can’t watch TV in your office during downtime. If you do, your office will not be considered solely for business.
You also need to use your office consistently to take advantage of the home office deduction. Feel free to call clients, bill customers, take notes, set appointments, meet with clients, order materials or write reports in your office. But an office that you only occasionally use does not count.
There are exceptions to the rule. If you run a day care business or you have a room set up for storage, you can still take the deduction even if the space is not 100% used for business.
3. Auto payments
Did you know that you can deduct the cost of consuming gas while driving to and from customer meetings?
Whether you own a real estate business, regularly meet clients or rent an office away from home, you can save hundreds of dollars on your tax return.
Use your car for business? You can calculate your deduction in one of two ways.
- Deductions based on standard mileage. If your regular business routine requires you to be on the go constantly, you may be able to save more by deducting a certain amount after each kilometer driven along with tolls and parking costs.
- Reduces ongoing expenses. If you occasionally meet customers or your car uses more gas than average, you can save much more by deducting part of the cost of gas, replacement tires, oil change, insurance and car registration.
Always keep an organized record of your car use, and filing your federal and state income taxes will be as simple as doing a few math calculations.
4. Travel and entertainment costs
Remember the vacation deal you bought just before your last business trip?
Write down part of your flight ticket, depending on how you spent your holiday. Part of your transportation costs qualify as a deduction if over half of your travel was spent on business. The more time you have spent on your business, the higher the deduction.
Need to pay for clean clothes while you were away? You can deduct expenses for laundry and dry cleaning. You can also deduct commuting costs, lodging, tips, fax fees, and costs for delivering product samples and viewing materials.
If you have ever hosted an event for your business in your office, restaurant or other location, you can deduct entertainment expenses that have helped to promote business growth or well-being. Remember that only 50% of meals are tax deductible.
You can even deduct moving costs if you had to move your home because of work. However, if the move was not directly related to your business, you cannot claim the deduction.
5. Educational materials and professional fees
Have you purchased a book to learn a skill that will directly impact your business? What about the copywriter you hired to make a sales page that would later turn a product launch into a massive success?
Business-related books, attorney fees and professional services are all fully deductible on your tax return.
However, you are not just limited to books and independent contractors. If you pay an accountant or buy a tax program each year, you can deduct tax preparation fees.
Do You Own a Business With Employed Staff? You can reduce taxes by deducting wages, bonuses and benefits such as health insurance and sick leave.
6. Overdue debt
If you sell your own services, you have probably stumbled upon an occasional troublesome client. Your client may refuse to pay you for work done, lowering your profit margin for the month. Maybe you even lent money to customers or suppliers, but the loan was never paid off.
Fortunately, this loss of income is fully deductible as long as you provide written documentation stating the amount of the debt, any interest and the steps you took to recover the debt. If you can prove that you have made several attempts to receive payment and that the debt is impossible to recover, you can write it off on your tax return.
Save your hard-earned cash at the end of the year by keeping a detailed record of business-related purchases and activities. You can use financial software to help with this, but simply open an excel spreadsheet to record the expenses when they show up works too.
Divide payments into clearly marked categories and save both time and money the next time you file taxes.
7. The lobster deduction
Did your company recently buy a car or a large machine? This can be converted into a large tax benefit using “The Lobster Deduction”, also known as Section 179 of the Tax Code. Learn more
Disclaimer: You should consult your tax advisor before following any of the ideas in this article. This article is a starting point for discussion with your advisor. I am not a tax specialist and although I believe that what is contained in this article is generally true, it may not be true in your particular case.