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As a small business owner you need to save money everywhere you can. Taxes are no different. Business writes-offs make the difference between a tax bill you can pay and one that drains your bank account.
1 Vehicle Deductions
If you use a vehicle for your business you can write off the cost of operating it. When you use it only for your business you can write off all of it. If it is for business and personal use you can only deduct what is associated with business usage. This can deduction can be used for whether it’s a purchased or leased vehicle. Be sure to keep good records of things like gas, oil changes or maintenance.
The other option is to write off the mileage and take the standard deduction from the IRS which in 2019 is 58.0 cents per mile for 2019. But remember that you can’t write off the operating costs and the mileage. It is one or the other. When you take the mileage deduction you must keep a record of the miles that were driven, when they were driven, where you went and what purpose it was for.
Also, if you purchase a new vehicle during the year, remember that you can deduct that on your return. Passenger vehicles, trucks, of operating that are used more than 50% for business, can be a deduction. This will vary depending on your vehicle and the tax code does change the amount from time to time as well. Check this IRS page for more details.
2 Travel expenses
Do you or your employees travel out of town for business? This is deductible. You can deduct the cost of transportation to get there, your lodging, car rentals or taxis, business calls, meals, tips, or dry cleaning. Get the full details at IRS Publication 463.
3 Salaries, wages, commissions and bonuses
Payments to employees, including salaries, wages, bonuses, commissions, and taxable fringe benefits, are deductible business expenses for the business.
Also anyone you pay to complete work that is contract or they earn a 1099 commission from you, you can deduct those payments. If they are contract labor be sure to issue Form 1099-MISC if you paid them more than $600 in the year.
4 Medical expenses
When it comes to medical costs you can deduct insurance premiums for health, dental, and long-term care insurance. This is for you and a spouse or children’s premium too.
You can also deduct medical costs such as doctor’s fees, the cost of prescription drugs, and inpatient or home care.
5 Retirement contributions
There are deductions for IRA’s but there are a few guidelines to know about. Eligibility for the IRA tax deduction depends on the type of IRA you’re contributing to, your adjusted gross income (AGI), and if you’re eligible to participate in an employer’s retirement plan.
You can use a traditional IRA to reduce your taxable income for the year, but not a Roth IRA. The max allowed to contribute for 2019 is $5,500 and $6,500 for those over 50 years old. If your AGI is below the “full contribution limit” threshold for your filing status, you can deduct 100% of your traditional IRA contributions up to the limit for the tax year. Remember that every year can be different.
To be eligible to contribute to an IRA at all, you need to have earned income, from either wages, salaries, tips, or bonuses. If all of your income comes from a business that you don’t have an active role in or only from investments it wouldn’t count for IRA eligibility purposes.
6 Employee benefits
If you have employees you can deduct several things. They are any health insurance you provide, education assistance, and liability insurance. Plus things like contributions you make to their retirement accounts (like a 401K), profit sharing, or other benefits that you provide.
Be sure that you check with a tax professional to be sure that you are taking the appropriate deductions.
7 Office Supplies
Any supplies that you buy to operate your business can be a write-off. If you need printer paper, cleaning supplies for a cleaning company or doggie bags for a dog walking business they are deductible.
For anything that is for both business and personal use, you must track how much something used for either purpose. For example, if you have a printer that you use for both purposes you will need to determine how much of your time it is used for your business or personal reasons
8 Office space outside of home
Do you use an office, storefront or some other location that is outside of your home? If so the rent on that can be deducted. Also, you can write-off the cleaning services and maintenance that is needed for the property. The utilities at this location will be deducted as well.
9 Home Office
Determine the percentage of the square footage of your home that is used for your home office. The deduction for the home office has direct and indirect costs. Direct would be repainting the office space. Indirect would be a percentage of the electricity for the house. You can also deduct a percentage of the mortgage interest and real estate taxes.
With the indirect deductions, you take the totals of the expenses and multiply by the percentage of your home that you use. For example, if you have a 1000 sqft home and you use 200 sqft this is 20% of the total. That means if your utility bill is $100 each month you can write off $20 of it for the business. This all requires good record keeping. If you hate additional records there is another option.
The IRS has a simplified method for calculating home office expenses. This allows you to deduct a standardized $5 per square foot of your home that is used for business. The maximum is of 300 sqft.
There are a few rules that you need to pass in order to qualify for the home office deduction. It needs to pass for exclusivity, regularity, and precedence.
The exclusivity requirement is just that exclusive. That means it’s not a desk in the corner of the living room. It needs to be a space that has clearly identifiable boundaries. For precedence, you must conduct the most important business activities out of the home office. Regularity means that you use the home office as the principal place of business.
10 Depreciation
Depreciation of your business assets can be deducted. By using depreciation, you can deduct the cost of a high ticket business item over the time it is used instead of the whole cost of the asset at once. Things like computers, furniture, cars, or office equipment are common assets for depreciation.
If the asset has a short useful life you would likely want to deduct that up front for a quicker benefit. As for higher price assets with a long useful life, you’re better off to depreciate the cost. FYI, if you take the depreciation deduction the IRS requires you use Form 4562.
11 Legal and professional services
Legal and professional fees like legal services and tax preparation can be deducted. Also, fees to accountants, bookkeepers and online bookkeeping service are deductible. One unusual allowable deduction is if you are making a will. You can deduct part of the fee that’s related to your business. So if a part of your will states how your business is to be handled upon your death this portion would be deducted. Be sure to talk with a tax professional about how to handle this.
12 Utilities
If you have a location that is outside of your home you can fully deduct the electricity, garbage, and gas bill for that location. Also, say you have an office that you have a tv with cable on it for your clients. That is deductible too. If you are using a home office, you can only deduct a percentage of the utilities.
13 Phone and internet
Do you use a cell phone for work, maybe a landline? Most likely you use an internet connection. Those are deductible. If the cell phone is for business and personal use you can write off a portion of the bill. The same goes for the internet use if you are using a home office.
If you have a landline that is for the business’ use only that would be fully deductible. The same goes for a dedicated cell phone for work only. If you have internet service at an office that is not a home office that would be fully deductible.
14 Interest and bank fees
Any money you borrow is going to have interest charged on it. Money borrowed for business activities can be deducted. This would be any interest on a business loan or business credit card.
Any debt that is used for business and personal use must be divided between the two uses to determine what percentage is used for each and then only the business percentage can be deducted. To make this easier keep your business and personal purchases on separate credit cards or loans.
If you have a mortgage on a property other than your primary residence you can deduct the interest on that property. The lender will send you a 1098 form that you will use when you file your taxes.
Interest on a car used for business can be a write-off. But be sure that if you use the car for business and personal use that you only write-off the portion for the business.
Also, don’t forget that any other fees that you are charged by your bank can be deducted. Think a monthly maintenance fee.
15 Taxes and licenses
There are taxes that you can and can’t deduct. There are licenses, regulatory fees
If you are a small business owner without employees, you take half of your self-employment tax. This is actually an adjustment to your gross income on your personal income tax return and not a deduction, but it is still nice to reduce your tax bill.
If you are required to have a business license or certification, these are deductible. Also, things like business LLC/incorporation
16 Insurance
There is a ton of different insurances that you could need. Here are just some, business owner’s policy, errors and omissions, malpractice coverage, general liability, workers compensation, and fire/flood insurance. These are all deductible.
Then there is health insurance, this is a little trickier. Self-employed individuals and more than 2% S corporation shareholders don’t do a business deduction. The premiums,
17 Advertising and promotion
The ordinary cost of advertising and promotion is 100% deductible. Any marketing materials, business cards, Facebook ads, flyers, signs, promotional gifts, etc are examples of things that you can deduct. Also, if you have a designer or a PR firm that helps with the advertising that is deductible as well.
18 Charitable contributions
This is simple. If you make a charitable contribution to a qualified organization you can deduct it. How you deduct it depends on how your business is organized. Sole proprietorships, single-member LLCs, partnerships, and S corporations deduct these on their personal tax return. If you are a corporation it will be deducted on the corporate tax return.
19 Education
Education that adds value to your business and increases your expertise is fully deductible. The IRS looks at whether the expense maintains or improves skills that are required in your current business. If that education is not appropriate for your current business or would be used to get a new career they won’t qualify as business tax deductions.
The types of education that would qualify are classes/seminars, the transportation to get there, webinars, books, and trade magazines subscriptions.
20 Pass-through business entity deduction
If you have a so-called pass-through business entity (sole proprietorship, partnership, LLC, or S corporation), for tax years beginning in 2018, you can potentially claim a deduction based on your share of qualified business income (QBI) from a pass-through entity. This new write-off is available to individuals, estates, and trusts.
It generally equals 20% of QBI, although there are some restrictions for higher income levels and another restriction based on your taxable income.
The deduction equals 20% of QBI from a sole proprietorship (including a solely owned LLC treated as a sole proprietorship for tax purposes), a partnership (including an LLC treated as a partnership for tax purposes), or an S corporation. The deduction is essentially treated the same as an itemized deduction, but you do not need to itemize to benefit.
This list is only a few of the business write-offs that you could take. Be sure that you speak with a a tax professional to see what write-offs you should be taking and which ones might not be best for you.
Use this as a starting list for questions to take with you for your appointment.
