As a business owner, it’s always important to be aware of every deduction that could reduce your tax burden, but with so much on your plate, it can be hard to remember them all and to record them when they occur. Here are seven valuable deductions that we often see clients overlook.
HOME OFFICE DEDUCTIONS
A home office deduction used to be considered something of a “red flag” for the IRS, as it was often abused, but with the explosion of work-from-home, it has become a more common and justifiable write off.
Despite becoming more common, though, the rules are still strict, so it’s important to understand them. According to the IRS website, “if you use part of your home exclusively and regularly for conducting business, you may be able to deduct expenses such as mortgage interest, insurance, utilities, repairs, and depreciation for that area.”
Note that most of the rules require that you use the space exclusively and regularly as your principal place of business. Generally, this will mean that you work from home, but it is possible that if you carry out the majority of a certain aspect of your business in your home, you may be able to deduct it. For example, if you operate a metal fabrication shop but perform administrative duties exclusively at your home office, you may be able to take the deduction.
Interesting exceptions to this rule are buildings separate from your home that are used exclusively and regularly for your business – they don’t have to be your principal place of business. And storage areas within your house that are used for business purposes can also be deducted – again if it’s exclusive and regular.
INSURANCE DEDUCTIONS
Just about any insurance you purchase for your business, yourself or your employees can be deducted as a business operation expense, including:
-
Medical insurance for employees
-
Life insurance for corporate officers
-
Unemployment insurance contributions
-
Liability insurance
PERSONAL VEHICLE DEDUCTIONS
If you use your personal vehicle for business purposes, you can write off either your gas expenses or the mileage incurred during business trips. In the past this meant saving lots of little slips of paper or constantly remembering to write down your odometer reading at the outset of a trip and at the end of a trip. These days, though, your smartphone is a great tool for simply entering the start and endpoint of a trip and noting the mileage displayed, plus there are a multitude of apps that offer to record your mileage whenever you drive your car and differentiate business from personal trips. It is important to note that this is an either/or deduction, meaning that you’ll need to choose whether writing off mileage or gas expenses makes more sense for your business.
TRAVEL DEDUCTIONS – BUSINESS “PLUS” PERSONAL
You can deduct a wide variety of travel expenses including plane fare, taxis, lodging, phone calls, and even tips. Best of all you can do so even if you enjoy some personal travel days as well.
This only applies to individuals actually doing business, though, so if your family joins you on a “business plus personal” trip, only your expenses can be deducted. You can deduct your flight, for example, but not your family’s flights.
DEDUCT THOSE APPS
Businesses are using more and more apps as part of their processes. Make sure you are keeping track of those for deductions, including:
-
Apps to help with your payroll (like Gusto)
-
Apps to help with your cash management (like Relay Bank)
-
Apps to keep track of your mileage, as discussed above
CHARITABLE CONTRIBUTION DEDUCTIONS
Depending on the type of company, charitable contributions your business makes can be written off for up to 25 percent of your taxable income. If your business is an LLC, an S Corp, or a partnership, however, those deductions will be applied to your individual income tax return instead.
EDUCATION EXPENSES
Business owners should always strive to increase their knowledge and expertise, and any expenses related to that are generally deductible. Such expenses include things such as:
-
Books
-
Workshops
-
Classes
-
Seminars
-
Subscription to professional publications
-
Transportation to and from any training
There are exceptions, though. You can’t deduct things that are not related to increasing your knowledge about your current business, and you typically can’t deduct classes that lead to a degree.
CONCLUSION
Any tax deduction that can help your business’s bottom line is worth documenting and claiming. Take note of the tips above and take advantage of any that apply to you, and be sure to ask your accountant or other advisers about other deductions you could be missing out on.