Sometimes we take it for granted but the truth is that the more tax deductions you can legitimately get, the lower your taxable profit will be. So, the goal should be to get as many deductions as possible.
The good news is that there are plenty of deductions that most small businesses can qualify for. Below, we take a look at nine of the most attainable deductions and how you can qualify for them.
If you (like other small business owners) use your car for business, or if you have a special car for the business, then you are allowed to deduct some of the costs you incur in keeping it on the road. There are two known ways of claiming auto express deductions; the actual expense method and the standard mileage method. In the actual expense method, you keep track of and deduct all business related expenses. In the standard mileage method, you deduct a certain amount for each mileage driven as well as all business related tolls and parking fees.
When a business is up and running, some of the costs you can deduct include utility bills, office supplies, and repairs. But before the business even opens its doors to shoppers, you can’t deduct these costs. At this time, the main cost is usually the starting capital. The IRA allows you to deduct $5,000 for the first year in business and then make equal deductions for the next 15 years for the remaining amount. There are a few shortcuts here though that a tax professional would help you take advantage of.
Books that you use to track the business are fully deductable as a cost of doing business. The same applies to fees paid to lawyers, consultants, and tax professionals.
Bad debt hurts business. Perhaps this is the reason tax authorities are allowing you to deduct most bad debt. The kind of bad debt that can be deducted typically depends on the type of business you run. For businesses dealing in goods, you are allowed to deduct the cost of goods that are sold but not paid for. For service providers, however, no deductions are allowed for time dedicated to a client/customer who doesn’t pay.
Any costs that go directly towards entertaining clients and customers can also be deducted. So, if you pick up a flat screen TV to entertain your guests in a hotel, then you're allowed to deduct 50 percent of the cost of the TV from the taxable amount. However, the entertainment item in question must either be directly related to or associated with the business. Speak with your tax preparer to learn more about this provision.
Any expense incurred during business travel is deductible. There are plenty of deductibles here including the cost of the trip (fare), cost of operating your car, lodging costs, taxi, meals, shipping business materials, telephone calls, cleaning clothes, faxes, and tips.
However, business travel can also be tricky especially if you combine business and leisure. What if on your business travel you also choose to take your family or pet along? In this case, you may only be allowed to deduct your own expenses. Again, speak with a tax professional to learn what you need to do.
For a small business that uses credit to finance business expenses, the interests and business charges are all deductable. The same applies in cases where the business owner takes out a personal loan to finance a business. You will, however, need to provide documentation so start by keeping good records.
In general, the cost of advertising your business whether on Yellow Pages, on Social media, through TV commercial and everywhere else is deductible as current expense. Costs incurred in promoting different events for business purposes are also deductible. For instance, if you sponsor your local football team, then that cost is deductible. For small business located in Bronx, NY, the Tax Associates will help you determine what qualifies as advertisement/promotional material and what doesn’t.
The cost of purchasing software used in running the business is also deductible. It’s a tricky matter though since different regulations have been enacted to control what kinds of software can be deducted and over what period of time. So, again, consult with your tax preparer. The same applies to new equipment such as computers and real estate. Generally, the costs of these expenses are deductible, but there are certain regulations governing how and when they are deducted. Property bought from a close relative and inventory bought for resale, for example, are usually treated differently. So, only a tax professional can help.
As you can see, there are multiple tax deductions that every small business can legally claim. If you’re based in Bronx, NY, contact the Tax Associates to learn which deductions you’re currently not taking advantage of that could get you more money in the back pocket. Leave us a message and we will call you back.
E WATERS