Business Tax Deductions 101
We get it, you’re busy. Busy with the day-to-day operation of your business and busy with your personal life. And now you’re busy scrambling for receipts – because it’s almost that time of year again. The time of year when the birds are chirping and the flowers begin to bloom, and that time of year when Uncle Sam rears his ugly head and comes straight for your money.
If you’re intimidated by tax-filing season and you feel like you might be losing out on your hard earned business profits, then please get in touch with me. But if you’re the rare breed that somehow has tax-time under control and has a handsome tax-return lined up, then I tip my tax-hat to you. Job well done.
But I would venture to guess that even the most tax-savvy of business owners haven’t filed for every business tax deduction that they’re legally entitled to. And you know what that means – hundreds, maybe even thousands of dollars are slipping through your fingers and right into the coffers of the IRS.
Fear not! The Hudson Valley Tax Pro at Padgett Business Services is dedicated to bringing you peace-of-mind, and perhaps even a bigger 2015 tax return. I have compiled a list of potentially lucrative business tax deductions that might legally (and ethically!) reduce your taxable business profits for the year.
But before we go any further, you’ll notice a common theme with each of the following business tax deductions. They are both “ordinary and necessary” per the IRS’s definition:
“To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary” – IRS.gov
*Note: I highlight the business tax deductions below – but you’ll want to call me to ensure that your business qualifies and remains in accordance with the tax code for each of these specific deductions.
Don’t overlook these deductions –
A vehicle is a legitimate business expense. If you drive a vehicle as a normal function of your business operation, you can and should write off either the mileage or the actual business-related expenses of the vehicle. The “standard mileage rate” in 2014 was 56 cents per mile (it has increased to 57.5 cents for 2015). Also, you may wish to deduct the “actual expense” that will help to cover depreciation, fuel, repairs, and any other regular and normal vehicular expenses.
You did collect and keep those Vegas trade-show receipts, didn’t you? You’ll be happy to know that many (and I do mean many) business-related expenses during travel can be deducted from your taxable income. Here are a few of the deductions you can claim:
•Cost of attending business functions
Depending on the structure of your business, you can make a charitable contribution and receive the business tax deduction either on your individual tax return or your corporation’s tax return. We recommend reading our previous post on charitable contributions. There are many facets and moving parts when it comes to deducting your donations, but this article serves as a great primer.
Advertising in some shape or fashion is just about a given in today’s competitive and sometimes saturated marketplace. The old adage still stands – you have to spend money to make money. The upshot of this is that any expenses pertaining to the advertising and promotion of your company’s goods or services can be deducted from your taxable income. Expenses such as business cards, Google ads, billboards, the giant inflatable gorilla thumping his chest atop your mattress store, yellow page ads, etc. are all tax deductible. Be sure to claim each and every one of these.
The IRS allows businesses and the self-employed to deduct the expense of a home office in their business tax deductions. The home office deduction can get a bit tricky, but recently a provision to the tax code has been made. This provision simplifies things by allowing a $5 per square foot deduction of your home workspace. If you have a dedicated work space – whether it be a large office, or even just a corner of your living room – you can deduct the square footage and feel good about it. Some think that claiming a deduction for a home office is an open invitation for an IRS audit. This just isn’t true. But the IRS doesn’t want people to abuse this provision, and they will crack-down on those stretching the boundaries.
If you have a cell phone account specifically setup for your business, and you only use the phone for business purposes, then you can deduct 100% of every phone bill you receive. However, if you take business calls on your personal cell phone, you can only deduct the percentage of time you’re actually using the phone for business. So, for example, let’s say Lisa only occasionally uses her personal phone to confirm client appointments. If she figures that 10% of her total phone use is spent on talking with clients, then she can claim a 10% deduction. Sounds measly, but this might add up to hundreds of dollars over the course of the year! If you haven’t looked into the cell phone deduction you might be missing out on a big chunk of change.
Paperclips, file folders, desk lamps, oh my! Alright, the topic of office supplies isn’t exactly invigorating. But what it lacks in inspired energy it certainly makes up for in tax deductions. You can deduct just about any office supply you buy for your business so long as it’s ordinary and necessary to perform your job. Unfortunately, the automatic, three-speed massage chair and that tanning bed in the corner of your office don’t make the cut. Think envelopes and computer equipment and staplers. The deductions that these items represent add up very quickly.
Here is a reference list for other common business expenses not to be overlooked.
I suggest that you write a list of your biggest business expenses. Then do a little bit of research into how you might claim a business tax deduction for each expense. You might run into a bit of difficulty, as sometimes the tax code can be too ambiguous or too specific. If this happens, get in touch with me and we can sit down and go over your business expenses together. I will make expert recommendations, and if you’d like, I can even prepare your business taxes for you.
And while you’re here, please write your top 3 business expenses in the comment section below. It’s nice to know where others stand.