We're excited to welcome CPA Jaimie Eck to the MOB blog as she shares her list of can't miss business tax deductions. You can learn more about Jaimie and how to work with her at the end of the blog post. As a CPA who works mostly with small businesses, the question I get asked the most is, “Can I deduct this?” Small business owners work hard for their money and want to save every penny they can from getting taxed. The good news is, a lot of the expenses that go into building and growing your business are tax deductible. The bad news is, with so many deductible expenses, it’s hard to keep track, and it can be easy to forget an expense that you should be writing off. So today I'm sharing a complete guide to small business tax deductions. From Schedule C (for sole-proprietors) to Form 1120 (for corporations). From typical small business costs to pro tips for taking advantage of write-offs. I strongly recommend having separate business banking and credit card accounts so you can make sure you’re deducting everything. And I also strongly recommend using some kind of bookkeeping software, something that can keep digital copies of receipts in case you get audited. Nobody has time to deal the clutter of paper receipts, but bank statements are not enough if you ever get audited, so you’ll definitely want a record of the receipts. Many popular accounting software choices —like Wave, Freshbooks, and Quickbooks—have integrated expense tracking with apps so you can easily keep track of things on the go. Can I Deduct Advertising Expenses? The money you put into getting your business going and growing can be deducted in full. After all, how could your business be expected to succeed without a little promotion? These expenses can add up fast, so make sure you’re accounting for everything. Common expenses in this category for small business owners include:
Can I Deduct My Home Office? If you have a room in your home that is only used as a home office and you do most of your work there then you can deduct a portion of your home costs as part of your business expenses. There are two ways to calculate this. The more complex way is to figure out the percentage of your home that is used for business and then calculate your home costs—like rent or mortgage, utilities, insurance, and repairs—by that percentage. Or you could go the easy route and use the simplified deduction, multiplying the square feet of your home used for business by $5 to get your deduction amount. Can I Deduct My Car or Truck and Gas? If you use your car at all for business expenses, make sure you’re deducting a percentage of those costs from your taxes, either by keeping track of the individual expenses incurred (like gas, maintenance, and even depreciation), or using the IRS’ standard mileage deduction — 58 cents per mile in 2019, 57.5 cents in 2020. Either way, you’ll need to keep track of your miles (if you’re writing off the individual expenses, you’ll need your business mileage and total mileage of the year to figure out what percentage of costs can be written off for business). Anytime you drive somewhere for your business—be it a business trip, a delivery, a meeting with a client or investor—make sure you’re tracking the miles and keeping a log somewhere. The biggest exception to what counts as business mileage is driving back and forth to your office or place of business—that’s considered commuting and no one can deduct commuting expenses. Whichever method of writing off you’re using, make sure you’re also tracking tolls and parking fees, which can be included whether you’re using the mileage deduction or individual expenses. If you purchase a vehicle for business use (like a delivery truck or van), you can depreciate the cost of that purchase over its expected lifespan. That is a separate tax deduction which I talk about later. Can I Deduct Charitable Contributions? If you’re a sole proprietor, LLC acting as a sole proprietor, or an S-corp, unfortunately, this deduction doesn’t apply to you (though you can still write these off in your personal taxes if you choose to do itemized deductions). However, if you’re a C-corp and donate money, supplies, or property to a recognized charity, you can deduct it. There are just a few things to note: donations of time aren’t included, you can’t deduct more than 10% of your income for this expense, and the charity must be a recognized charity with the IRS. Can I Deduct Commissions and Fees? Any amount that you pay someone else to help sell your product or service can be written off. Common expenses in this category for small business owners include:
Common expenses in this category for small business owners include:
Any expenses that went into creating and delivering the products or services you sold during the year can be written off. This includes direct costs (like raw materials, merchandise for resale, and packaging) and indirect costs (like the labor required to create the product and costs to store the products). Depreciation and Amortization Large equipment or assets costing over $1,000 that has a useful life of more than one year for your business must be written off over the course of their expected lifetime through the processes of depreciation (for physical assets) or amortization (intangible assets). You can use Section 179 expense deduction to expense the full cost of qualified business property that was purchased during the year, so long as you also started using it the same year. Common expensive purchases like computers and furniture count under this, so it’s worth paying attention to for maximum write-offs. Common expenses in this category for small business owners include:
Can I Deduct Employee Benefit Programs? This is another section that’s not super commonly used in the small business world, but if you do employ others and provide benefits, you can write the costs of those off here. This can include things like:
Can I Deduct Other Types of Insurance? If you purchase business liability insurance or event insurance, you can write the cost of the premiums off here. If the business owns vehicles that are 100% used for business purposes, you can also write the cost of the car insurance off here. If you’re self-employed and are looking to write off your health insurance, you’ll handle this on the personal part of your tax return. Can I Deduct Interest? Any interest you pay on credit cards, loans, or other lines of credit can be deducted here. Note that this applies only to accounts that are strictly for businesses purposes—if you use a credit card for a mix of business and personal, the write off doesn’t apply. Can I Deduct Legal and Professional Services? If you don’t have in-house legal or bookkeeping and instead pay an attorney, accountant, bookkeeper, or tax professional to help with your business, you can write off the expense here. Note that if you pay an accountant to do both your personal and business taxes, you can only write off the expense related to your business taxes—see if the Schedule C is a separate line item on your invoice, or just ask your accountant what the cost for the business filing portion was. Can I Deduct Office Expenses? Anything you purchase to make your work space a more productive place to be can be written off in this section. Common expenses in this category for small business owners include:
Can I Deduct My Rent or Lease Costs? The cost of anything you rent for your business can be deducted here. Common expenses in this category for small business owners include:
Any costs you incur repairing or maintaining your equipment or office space can be written off here. Common examples of small business expenses in this category include:
All those things you feel like you’re constantly using and replacing to keep your business running smoothly? Those can be written off as supplies. For small business owners, this can include things like:
Can I Deduct Taxes and Licenses? Any taxes or fees you need to keep your business legally up and running can be written off here. This can include things like:
Can I Deduct Business Travel and Meals? While unfortunately, you can’t deduct your summer vacation, the costs of travel and meals related to business can save you some tax cash. For travel expenses, you must be on the trip primarily for business purposes. Then, you can write off pretty much every cost of the trip, including:
As for meals, you can write off 50% of the cost of food and drink as long as it’s for a true business purpose. When tracking these expenses, record the full cost of the meal, and then report 50% of the total cost on your tax return. Meal costs that can be written off include:
Unfortunately, this does NOT include getting yourself lunch during the day, or going to a coffee shop to get work done by yourself. Can I Deduct Utilities? Utilities you pay for running your business can be deducted here, including:
Can I Deduct Wages? If you have employees, you can deduct their wages here. Unfortunately, you cannot deduct the wages you pay yourself as a sole proprietor or LLC business owner. You are considered to be taking Owner's Draws in those circumstances and they are not considered business expenses. However, if you are an S-Corp owner then you MUST pay yourself a reasonable wage through payroll and in that case your wages are considered a business expenses. What Other Expenses Can I Deduct on My Business Taxes? Other expenses include anything that doesn’t fit in the categories above, but that is still ordinary and necessary for your business to function. Some common extra expenses I always make sure my small business clients include are:
![]() Jaimie Eck is a CPA in Oregon and Washington and owner of Green Taxes, Inc. Her goal is to be your year-round tax partner for your tax and accounting needs. Her first consult is always free, and she promises to get your taxes done quickly and accurately and wants to help you find every tax deduction and credit you are entitled to. Connect with Jaimie.
1 Comment
1/31/2020 11:18:42 pm
This is amazing! Very simple, listed like a checklist, and straight to the point.
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