7 Small Business Tax Deductions That You Don’t Want To Miss
7 Small Business Tax Deductions That You Don’t Want To Miss:
1. Travel Expenses – The cost of traveling from your business location to a temporary workspace, such as an out-of-town site for a trade show, can be deducted as long as the space was substantial enough to consider it a second workplace. Examples include equipment and office supplies purchased for those locations or travel expenses directly related to those locations. An example would be the cost of a cell phone bill incurred at a remote work site. Keep in mind that all costs must be reasonable before they’re deductible.
2. Home Office Deduction – This deduction isn’t available if you file married filing separately or if someone else uses part or all of your home exclusively. You can’t deduct expenses for a separate area within your personal residence unless you use it exclusively and regularly solely for business purposes, such as for storage space. It also must be used on a regular basis to meet with patients, clients or customers in the normal course of business.
3. Automobile Expenses – The standard mileage rate is currently 34 cents per mile driven to conduct business and while traveling away from home on business expenses. Gasoline and other car-related expenses may also be deductible if they’re directly related to conducting business. If you use your car for both work and personal uses, you’ll need to determine what portion is deductible according to IRS guidelines [aka not 50%.] To so, you’ll need to keep detailed records, including odometer readings at the beginning and end of each business trip for all your cars.
4. Meals – The IRS allows 50 percent of meal expenses incurred while traveling away from home on business to be deducted as an entertainment expense or deductible travel costs. For meals eaten while traveling on business, only 50 percent are subject to income tax if there’s no significant additional cost beyond what it would have been without the meal. If you use your actual expenses method for deducting meals, then you must reduce the otherwise allowable deduction by the amount that exceeds either $75 per day or 50 percent of your unreimbursed meal expenses. When determining whether a meal qualifies as a business expense, ask yourself, “Would I have purchased this meal if I hadn’t been on a business trip?” If the answer is, “Yes,” then it may be deductible.
5. Business Gifts – In general, you can deduct ordinary and necessary expenses of entertaining customers or clients, but you must make certain it’s directly related to your business activity rather than merely social in nature. Remember that the definition of an entertainment expense includes both entertaining and being entertained. Also, even a gift given in appreciation for past favors won’t qualify for a deduction unless there’s a clear business purpose involved during the giving of the gift — not just because it benefits the recipient personally. For example, you’re going to visit another city to present a seminar. You add on a side trip to another city where the client you’re going to present to is located and give them a gift in appreciation for their business. The entire trip is deductible, even though it may take on a social overtone in places (such as when you visit your old college roommate who now lives in the destination city.) It’s still deductible because it clearly has a business purpose, since there would be no need for the side trip if not for your business activity.
6. Casualty and Theft Losses – If your property was damaged or stolen while conducting business, then any casualty loss that isn’t covered by insurance can be deducted from your income taxes [if it applies.] You’ll need proof of damage/theft and an estimate of how much it’ll cost to fix/replaced the property. The deduction isn’t deductible if you receive insurance reimbursement for the loss (i.e., if your insurer pays for damages and is reimbursed by your business’s policy.)
7. Employee-Related Expenses – Employers may deduct the ordinary and necessary expenses they pay or incur for their employees as well as those of their spouses and dependent children under age 21, but only if the expense is: (1) an ordinary and necessary business expense, (2) genuinely related to employee’s performance of services and (3) not lavish or extravagant under the circumstances. These expenses include:
(c) incentive payments;
(e) vacation, holiday and sick leave pay;
(f) severance pay;
(g) contributions to company benefit plans (including cafeteria plans, health and accident plans, educational assistance programs, group term life insurance policies, etc.);
(h) employment-related expenses for maintaining an employee’s job or profession (such as dues paid to professional societies related to the job);
(i) costs of conferences attended by an employee in connection with his/her employer’s business;
(j) reimbursements made under a non-accountable plan that doesn’t meet certain IRS requirements (for example, if you give an allowance that isn’t fixed or determinable and doesn’t bear a direct relation to the service performed — such as when you give your assistant an allowance for travel and entertainment, but don’t require her to submit proper documentation for what she spent on actual expenses);
(k) relocation expenses;
(l) security costs (such as alarms and locks);
(m) stock options;
(n) health insurance premiums paid by the employer [if it applies]; and
(o) certain other benefits that aren’t lavish or extravagant under all the facts and circumstances. [A deduction can exist if] You’re self-employed or own/operate a business, then the above rules also apply to you. However, in addition to claiming deductions for yourself, you can also claim a deduction for employing your spouse, as well as any contributions to benefit plans made on behalf of your children under age 21.
8. Home Office Deductions – If you use a portion of your house exclusively and regularly for conducting business activities, then you may take advantage of specific tax deductions. Such expenses could include:
(b) depreciation (for the part of the house used only for business);
(c) insurance premiums;
(d) utilities; and
(e) cleaning expenses. However, you must satisfy additional IRS requirements in order to claim these home office deductions: (1) The used regularly and exclusively must be the principal place of your business or work; (2) The space must be used for no other purpose, and not merely sometimes — it’s an exclusive use requirement; (3) The space can’t be part of another separately rented space; (4) You must clearly delineate the claimed area to distinguish it from other parts of the home that are used exclusively for private purposes — this is important for tax deductions involving “exclusive use;”
(5) Lastly, you ought to keep accurate records that justify–and quantify–the amount of deduction taken.