Small Business Tax Deductions

Have you started up a new small business in the last year? Maybe you decided to start a home-based business recently. Regardless of your business endeavors, if you will be filing income taxes as a sole proprietor, self-employed entrepreneur, or business owner, you definitely want to brush up on possible tax deductions to reduce the amount of income tax you will owe. In the list below, you will find a number of possible deductions available to you. Keep in mind that this is not an exhaustive list and all deductions listed may not apply to you. Always consult with a CPA or professional tax advisor before filing and claiming any deductions on your income tax forms.

Location Expenses

Every business requires a place to operate the business from. More often than not, every location requires some type of monthly expenses. Whether you pay rent or lease office space, make payments on a mortgage, or use a virtual address for business and work from home, it likely you can deduct at least a portion of these payments as a business expense. Let’s look at some examples:

Home Office

If you conduct business from the comfort of your home, you can deduct a certain portion of your rent and utilities on your income taxes. The percentage you can deduct is conditioned on the size of your exclusive workspace, as well as the amount of time each day spent conducting business out of your home.

Recently, the government introduced a simplified method to calculate these expenses. An individual operating a business from home can deduct a standard amount of $5.00 per square foot of the portion of their home used exclusively to conduct business. This area can’t exceed 300 square feet, and it must be used only for business. For example, a desk area would not qualify if it doubles as your kitchen table. Additionally, your home work area must qualify as your principle place of business.

Home office expenses can be deducted on Schedule C of Form 1040. If you choose to use the standard deduction instead of listing each deduction separately, you will also need to file Form 8829.

Building Mortgage or Lease

If you own the building you operate your business out of and are currently paying a mortgage on that building, you can deduct the interest on the mortgage. Likewise, if you are leasing the building, you can deduct any expenses associated with the lease.

Utilities, Maintenance, and Other Expenses

In addition to a location, every business incurs utility costs, maintenance expenses, and other services to operate on a regular schedule. Utilities such as gas, electric, water, and sewer can be deducted on your income taxes. Don’t forget services such as Internet, phone, and local trash pick up. A portion of all of these monthly expenses can be deducted depending on what percentage of your home is used for business. If you operate your business exclusively from a separate location, the entirety of these expenses for that location can be deducted. Don’t forget to include maintenance and upkeep expenses for the location as well. This can include such services as landscaping, lawn maintenance, snow removal, and cleaning.

In addition to utility and maintenance costs, you can also deduct expenses for some office equipment and supplies. Basically, anything you may have purchased throughout the year that is used to conduct business can be claimed as a deduction. This can include more expensive equipment such as computers and cell phones, or you can even deduct the cost of smaller office supplies such as computer ink, paper, and ink pens.

Keep in mind that you will need to keep track of any expenses you pay for these utilities and other services throughout the year. If you pay someone more than $600 through the year for services related to your business, you are required to provide that individual with a 1099-misc form. You are also required to file that form with the IRS.

Advertising and Promotion

Any costs you incur throughout the year related to advertising or promotion of your business or services are 100 percent deductible. This can include things such as having business cards printed, taking out an ad in the local paper, or any costs associated with placing an online advertisement.

Single-member LLCs and sole proprietors can list these expenses on Schedule C of Form 1040.

Multi-member LLCs and partnerships can claim expenses for advertising and promotions on Form 1065, line 20.

Business Meals

Fifty percent of costs associated with a business meal can be deducted on your taxes. In order to qualify for this deduction, however, the meal must be business-related. You must also record the total amount of each expense, the location and date of the meal, and what was discussed. It is also required that you have a business relationship with the person you dined with. A good way to keep track of this info is to write it all on the back of the receipt. Be sure to file the receipt with your other business expenses for the year.

Business meal expenses can be claimed on Form 1040, Schedule C.

Other Possible Deductions

The deductions listed above are just barely hitting the nail on the head when it comes to the various types of expenses you may be able to claim on your income taxes. Here are some other deductions you may qualify for:

  • Business insurance costs
  • Interest and fees on business loans, accounts, and credit cards
  • Business use of your vehicle
  • Childcare costs
  • Depreciation of business equipment
  • Education expenses
  • Energy efficiency expenses
  • Foreign earned income exclusion
  • Investments
  • Legal fees
  • Medical expenses
  • Moving expenses
  • Retirement contributions
  • Salaries and employee benefits
  • Travel expenses

To make sure you are claiming each and every deduction you are eligible for and reducing the amount you owe the IRS by as much as possible, always consult with a tax professional before filing your income taxes. Keep excellent records and file away all business-related receipts each year. Remember that the more expenses you can verify and deduct, the lower your business income is. The lower your business income, the less you will owe the IRS.

 

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