As an owner of a small business, tax time can feel overwhelming. Yet with good recording keeping, you can easily take advantage of several small business deductions that will help you to reduce your tax liability and also keep your tax preparation fees lower. Below are six different tax deductions that you can use as a small business owner. Thus, by tracking these expenses throughout the year, you can assist your professional in making sure you have all deductions your business has earned.
Auto Expenses and Mileage
Keep a notebook in your car and track your mileage, parking fees and tolls. Be sure to note the purpose for the trip. It might even be a good idea to put an envelope in your notebook to hold receipts from tolls and parking. While it might seem easier to just take the standard mileage rate deduction, you could be selling your business short. The actual expenses might end up producing a higher deduction. The reason is that you also get to include repairs, insurance, maintenance and depreciation for the business portion use of your vehicle.
Professional and Legal Expenses
Most of your professional and legal fees are deductible, but if they are part of your startup costs, you will have to amortize them over a period of time. However, you can also deduct professional association dues as a business expense. Keep in mind, that if the association does any lobbying or contributing to political campaigns, those portions cannot be deducted. Your association should be able to give you the necessary percentages to assist your tax professional in claiming the right deduction. Professional publications and the subscription fees for them can also be included as a deductible business expense.
Start Up or Expansion Business Expenses
While startup or expansion costs can be deducted, you need to elect whether you will be amortizing those expenses over a period of time or taking them all within your first year. Your local accountant can assist you making sure that the proper paper election is attached to your return. The election needs to declare your intention or the expenses will become nondeductible until you sell or liquidate your business and its assets.
Gifts, Advertising and Training for Employees
Client gifts are deductible, but you need to remember that there is a limit to the amount you can deduct per gift. Advertising is also deductible, but you need to remember that expenses can only be deducted for that year. Hence, multi-year contracts mean that have to spread the costs over all the contract’s term.
Additionally, if you have members of your staff that attend continue education or certification classes, you can deduct the costs associated with that training. However, it must be in line with the business you are already in. If you are branching into a new line of business, those educational costs will not be deductible.
Bad Debts and Interest on Loans
Many businesses take losses. Clients do not pay promptly or they simply do not pay at all. These bad debts can be deducted, but you must have declared the income prior to taking the deduction. If you are using an accrual method of accounting, you declare the income when you bill the client. However, if the client never pays, then you can choose to take a bad debt deduction on that declared income.
The interest you pay on your loans can also be deducted. However, if the loan has been made by a relative, you need to make sure that it conforms to the loan criteria of the IRS. Otherwise, you might find yourself unable to deduct the interest as you anticipated.
Taxes
When you pay your state taxes, you can save the receipt, because that counts as a deduction. However, the original tax bill might be rather high. Therefore, most business owners are encouraged to set aside 50% of the net income for taxes, including social security and other payroll taxes. If your bill is less than that, it will be a bonus for your company.
As we have seen, there are plenty of deductions available for small businesses. The important thing is to keep your books up to date throughout the year and track the relevant expenses. Working with a tax professional can assist you in maximizing all these deductions. However, it is important to make sure that you are properly tracking them all throughout the year. If you have questions about how to do so, then you need to consult with your accountant.
M-E Accounting & Tax Services, Inc.