The Ins & Outs Of Tax Deductions And Benefits For Small Businesses

Owning your own business has so many great benefits, like choosing your own hours, picking your own employees, and even choosing your own uniforms (even if it’s just sweatpants and slippers!). 

Another great plus is the tax deductions and benefits you get when you file your federal income tax. Have a look at this guide to some of the best tax deductions and benefits for small businesses to see what kind of business expenses you might be able to write off. 

Small Business Tax Deductions

As a business owner, it’s important to be aware of the various tax deductions you may be eligible for. Many business expenses are tax deductible, which can save you a significant amount of money at tax time.

Some common business expenses that are tax deductible include advertising and promotional costs, business travel expenses, office supplies and equipment, and business entertainment expenses.

Let’s take a closer look at some of these small business tax deductions and business expenses that small business owners can write off of their taxable income come tax season.

Capital Expenses

Starting your own business might require a larger investment when it comes to equipment, supplies, or the business property, and you can get some of that back. A capital business expense is something that is spent on your business to get it going, such as advertising or any repairs you need to make sure your space is in working order. The expense has to be something that will add value to the company for more than a year, so a larger industrial printer would qualify, but the ink and paper used in the paper like would not (we’ll talk more about current vs. capital expenses later)

A capital expense is something that’s going to be used to improve the business over a long period of time and you need to make sure you keep all of the receipts and paperwork that went along with the sale in order to properly claim it. You can usually claim up to $5000, but you can only deduct that amount in the first year.  

Rental Costs

If you are renting a separate business property to house and run your company, then you can also claim that. The best way to do this is by ensuring that all of your supplies and business mail are sent to this address instead of your home address. 

If you work out of a home, you can claim a portion of your rent (or mortgage interest) and utilities. This can be tricky to figure out, but the first step is to measure the space you work in and determine what percentage of the home it takes up. Then you can use that percentage to find a rough estimate for your utilities and rent. This is a rough estimate, and if your business uses excessive power or water, you should calculate that separately (try looking at your reading on a day off and measure it again on a day you’re working) so that you can give an accurate reading. 

Travel Expenses

Many small business owners rely on travel for business purposes; say to get their supplies or to drop off their product, which it turns out, you can write off a portion on your tax return! So make sure you keep a good record of your mileage and gas expenses. If you need to make a longer trip for work, then that will likely be deductible too, and this will include many of the expenses you incur while you are there. Hotels, food, car rental, and any parking expenses can also qualify as a write off on your business income.

Make sure you always ask for a record of your expenses and keep any receipts in a safe place so they won’t get mixed with your personal receipts when you travel. You can also look at getting a credit card just for your business travel expenses so that you can have all the charges in one place.  

Home Office

We mentioned how you can claim the space for your home office, but let’s talk about the what other home office deduction options you have available to you. You’ll be able to claim all of the basic items you need in your home offices, such as your furniture, equipment, and any supplies you need. You can claim some of these expenses as capital expenses as they’re used for an extended period of time, but things like supplies will likely fall under a current expense, which will be another category on your tax return.

Any construction can also be written off if you need to change a room into a home office. Painting, carpeting, or even soundproofing your home office can be claimed as long as your home office is only used for business purposes. You also might be able to claim your internet bill, but you will need to make sure you are only claiming the portion used for qualified business income, so look into adding a separate line so you can easily track your usage. 

Skill Building

Building your business is essential if you want to eventually go from a small business to a major company, and you need to build on the skills you have. There are plenty of courses, conferences, and educational seminars you can take to help you learn more about how to make your business bigger and better. You can claim all these expenses if they are related to your business sector, and you can claim them as a tax deductible over time if they are related to small business tax in general. 

If your business is related to creating, then have a look at courses in your area that will allow you to expand your knowledge into making new products or developing into new categories. You can also claim any course you take that gives you a new skill that your business will benefit from. These are a great tax deduction because you will end up with a skill whether you stick with the company or not.  

Work Uniform

Before you click away and start looking for Prada suits and Gucci handbags, be aware that there are stipulations to this one! You can claim your work uniform IF you can not use it in everyday life as clothing. Some great examples of this would be a customized apron you use for serving at events or any medical scrubs you would wear if you are an esthetician. 

You can also claim any clothing or equipment related to your job’s safety, such as gloves, hard hats, or work boots. You will likely be claiming these as an “other expense” on your tax forms, so keep a record of any online or in-person purchases you make. The item has to be directly related to your company, so you won’t be able to claim work boots for your cake decorating business.  

Legal and Professional Fees

Your bank will likely charge you a fee every month in order to manage your account, but you can claim this on your taxes too. Many business owners find a separate business account is one of the best ways to track all of your spending, and you can claim any fees on the account. Suppose you hire a bookkeeper or financial consultant. In that case, it’s also a good idea to pay them from this account, as both can be eligible for a write-off. 

You can also claim any expenses you made with any consulting companies related to your business. Suppose you called in a company to give you some professional advice or you contacted a lawyer. In that case, you can deduct the fee for the year the advice was directly related to. Suppose the advice pertains to something that would give the company help over time. In that case, the deduction must be taken in equal amounts for 15 years.  

Employee Pay

If you have employees working under you, you can claim their wages on your returns as employment taxes. This does not apply to your own personal salaries or any wages given to someone who is considered to be a business partner. Keep a good log of your employee’s hours worked and how much they were paid to make sure you can claim it properly. 

If you hire any independent contractors that year to do a small amount of work for you, then you might be able to claim that too. Any job over $600 can be claimed as long as it is only related to your home business. Something like a car repair can only be claimed if the vehicle is primarily used for business, but if you need your home office professional soundproofed or you hire a social media manager for a few months, you can claim the job as a business expense.  

Educational Entertainment

There are so many great sources that can help you learn more about new things in your field. If you have purchased any books, magazine subscriptions, or access to online videos related to your business, keep a log of when you bought them. These can all be claimed, and they are a great way to give yourself some extra education.

If you have many employees in your business and you go to an event together that is meant for team-building (there are plenty of fun and exciting activities that fall under this category, from zip lining to mini golf), then you should be able to put that on your tax forms too. Keep in mind that entertaining clients can only be expensed in specific ways, so you won’t be able to claim those Super Bowl tickets for a prospective client anymore.  

Moving Costs

If your business has reached new levels of success and you need to move into a new space, then make sure you keep an excellent record of all the money you spent on your move. This includes packing items like boxes, a moving service, and any truck rentals you need to make to get your equipment from point A to point B. In order to claim these, your new business must be at least 50 miles away from your old place of business, so moving next door won’t really cut it.  

Promotional Expenses

If you want to get a few business cards or you want your face on a billboard, you can claim it as a promotional expense. These can be done in many different ways, but many small businesses are choosing to do their promotion online. This means you are usually buying ads or paying to boost your posts.

Online expenses might seem difficult to track, and one of the best ways to do it is by printing out the transaction record of your online purchases. This is one of the best ways for your tax professional to see which companies received which money and when. It’s easy for emails to get trashed or misplaced sometimes, and a physical record can sometimes be better. 

Membership Fees

If you are part of any association that is related to your business, such as a local realtors association or a small business association, then you can also deduct these fees. Many journalists use different online sources that require a paywall, or they have specific websites that offer more thorough information to members. If you are using the website and the membership exclusively for work, then you can claim them. 

Software

If you are using a software program for your job that you either purchase outright or pay a fee to use, then you can look at claiming it as a long-term expense. Anything your business uses for a long time will need to be claimed over that period instead of all at once. Software is commonly purchased and upgraded, so it would be considered a long-term deduction. 

Suppose you have purchased a computer that comes with software loaded already. In that case, you will not be able to claim it separately. Luckily, you can usually claim the entire system if it qualifies as being used for your business only.  

Phone Service

Many of us use our phones for everything, and you can only claim it if the service is primarily for work. This can also apply to a landline system that is used for your home business. This one gets a little tricky, but if you happen to have a separate phone with a separate line of service just for your business, then it might qualify for a write-off. 

Your personal phone will not qualify unless its primary use is keeping up with your business. Some people run entire businesses using just their phones, so if your company cannot work without one, you might be able to claim the service on your personal phone. Otherwise, getting a business phone with a separate line is a good idea. 

 

There are plenty of things you can claim on your tax return as long as you have a record of it and as long as it relates to your business. Keeping track of all of our expenses and using a separate account, credit card, and phone line for your small business will make it easy to file your taxes successfully. To learn more about running a small businesses, finances, taxes, and all that managing a successful company entails, check out these other great articles! Stay informed, stay up-to-date, stay successful!

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