All About Small Business Tax Deductions

The 2017 tax season is upon us and the deadline to mail your taxes to the IRS is fast approaching. Many accountants are combing through receipts of the past year to find the absolute best tax deductions possible.

Tax deductions are some of the best reasons to owning your own small business. The government allows you to deduct a number of things that can make a big impact on your bottom line.

Tax Deductions You Can Take

Home Office

If you run a small business out of your home, then consider taking the home office tax deduction. The IRS has guidelines that you can follow in order to claim your home office. It doesn’t matter whether you rent your home or you have bought your home, you can still take the home office tax deduction. However, keep in mind that if you are ever audited, you will have to give the IRS proof that you regularly used a certain part of your home to run your business.

Even if you have an office outside of your home, you can still claim a “home” office tax deduction.

To calculate the deduction the IRS will ask you for a percentage of the home that you use for business. Keep in mind that the IRS will accept “half” of a “room” as a home office expense. As long as the work area is divided and clearly defined as “work”, it can be a deduction.

Office Supplies

You can take a tax deductions on all office supplies that you buy for business. This can include most small things that you need to run an office. We encourage you to keep receipts for paper clips, post it notes, keyboards, monitors, tissue. It all counts and it all adds up over the year.

Please keep in mind that larger purchases such as computers, telephones and copy machines are not labeled under the office supply deduction. They generally go under the “Other Equipment” deduction. With “Other Equipment” purchases, you can depreciate the equipment over the next couple of years instead of taking the entire deduction for one year.

Software and Subscriptions

Although you may consider software as an “Office Supplies” purchase, it is actually a separate deduction. Any software purchases you make throughout the year will receive full deductions under the “Software and Subscription” deduction. This is also true for any subscriptions you make. Subscriptions can be magazines, newspapers and other month to month expenses.

Office Furniture

Office furniture can be a huge expense incurred by a small business throughout the year. If you made large purchases for furniture such as office desks, chairs and filing cabinets, then you have the choice to depreciate the cost over a number of years. This may help you reduce your tax bill on years where you have to pay more taxes. You may also choose to deduct the entire purchase in one year. Keep in mind that the IRS has a specific formula that you must calculate yearly over the depreciation period to figure out how much you can depreciate each year.

Mileage

If you spend a lot of time traveling in your car for business,  the IRS is happy to compensate you through deductions. Mileage is determined the minute you step into your car for business purposes. You must keep track of each trip taken including the miles covered as well as any other fees you incur while driving such as gas, parking, tolls and fees. You must also explain the purpose of your trip and how it relates to your small business.

Mileage is usually calculated in two ways at the end of the year. You can calculate your total mileage for the year as well as parking expenses and any toll fees. Then you must consult the IRS website to get the yearly calculation formulas. This is usually a number you are given to multiply your mileage for the year.

The second option when deducting mileage is simply calculating the business use of your vehicle against your personal use. With this option, you can also deduct gas, auto repairs and yearly insurance fees.

Leasing vs. Buying

It doesn’t matter to the IRS whether you are leasing or buying your business car. You can still take the deductions for all business travel in your car. The only difference between leasing and buying a car is that owners who are purchasing will be able to deduct the interest that they pay on the car loan.

Travel, Meals, Entertainment and Gifts

Business deductions are good for many things. However, the best deductions are travel costs incurred while attending to businesses. If you have to travel you can deduct everything from the hotel where you are staying to the cost of getting to your business destination (planes, trains or automobiles.) You can also deduct car rentals and associated gas fees that go with that rental. You can take all these deductions up to 100%.

However, you might want to limit your spending when it comes to meals and eating out. Those particular deductions are only 50%.

Medical Deductions

Health insurance can be a huge concern for many small business owners. If you are self-employed, you are generally completely in charge of your insurance premiums. However, the good news is the government will give you a 100%  tax deduction off your insurance premiums. There are a few rules that go along with taking the medical deduction on your insurance premiums. We recommend that you check the IRS website to keep up to date with the latest medical deduction rules.

Contributions to Retirement Accounts

If you have found that you still owe a substantially large tax bill, then it isn’t too late to send money to your IRA/Retirement account. You can receive a generous tax deduction by simply putting money in your retirement accounts. This can be done for the previous year all the way to the April tax return deadline!

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