Tax season is fast coming to a close! Have you maximized your deductions?
First off, I want to be clear that I am not an accountant or CPA, and I am in no way giving specific advice on how to file your taxes; however, I do have over twenty years of experience paying all sorts of business taxes and I have worked tirelessly with many professionals to ensure I only pay what I am legally required.
A common misconception about tax write-offs is that it’s a sneaky way to pay less in taxes. It’s absolutely not! You are entitled to take 100% of the deductions for which you are legally eligible!
Small business owners can and should write off as many deductions as possible to help lower the amount they owe on income taxes, and, depending on the business entity, here are my top tax deductions you (or your accountant) should be considering:
Education is always a good idea, and if it’s related to your business, it could be a tax write-off. If it brought value or expertise to your business or a new business venture, then it’s absolutely deductible. Look for things like:
- Workshops and seminars in your field
- Trade shows and publications
- Books and webinars in your industry
- Classes and courses to help you maintain your field expertise
2. Business Insurance
Business Insurance is a must! If you have a brick-and-mortar business, then your general liability insurance is deductible; and if you have a home office, your renter’s or home insurance policy can also be written off (at least, in part).
3. Start-Up Expenses
If you started a new business in 2021, congratulations! You are now eligible for up to $5,000 in deductible startup expenses for your business launch. Maybe that’s basic marketing, maybe it’s renovations, maybe it’s training…a lot can go into this. Definitely check with your tax advisor!
4. Office Supplies
Printers, pens, computers, and coffee pots…you can write off office supplies of all kinds, as long as you use them exclusively for business purposes within the year you purchased them. Don’t forget receipts! It’s all fun and games until an auditor comes calling.
5. Home Office Expenses
Under the new simplified option for Home Office deductions, freelancers, self-employed, and home-based small businesses can deduct five dollars per square foot of your home office that’s used exclusively for business (up to 300 square feet). Now, don’t get crazy…notice that word “exclusively,” i.e. you can’t claim your guest room/office or your dining room table/office and it must be a principal place of doing business.
6. Business Bank Interest and Fees
I hate bank fees…until tax time. If you took out a loan to fund your business, incurred a bank fee on your business account, paid a credit card fee or two, or paid a credit card annual fee, these expenses can be deducted.
7. Professional Services
Anyone whose professional service you hire for your business, like a lawyer, accountant, or bookkeeper, can be written off, as well. If you’re not sure who qualifies, these guidelines from the IRS could help.
8. Salaries and Benefits
If you own a small business and have employees, you can write off their salaries, benefits, and more as long as:
- You pay them a reasonable salary
- The employee is not a partner or LLC member in the business
- The employee is not the sole proprietor of the business
9. Paying your Kids
Did you know you can hire your kids? If you pay them a fair wage (so you can’t pay your six-year-old $100 to take out the “company” trash), you can deduct it as a business expense. Bonus: you can set up a custodial IRA and help make your kid a millionaire one day.
10. Child and Dependent Care
If your child is under twelve, you can write off costs associated with their care, just make sure you have an EIN for childcare providers if you expect the deduction. Adult dependents also qualify for deductions.
Does your company have a guard dog? How about a pest-controlling cat? Bet you didn’t know you could write off expenses associated with their care, like pet food. But heads up, you actually have to document your pet’s working hours…just like an employee.
12. Phone and Internet
If using the internet is vital to your business (is there a business that DOESN’T use it?), you can deduct these expenses, too. Be advised, while internet use at an actual place of business is pretty clear, if you are using it for a mix of business and personal (like at a home office), you can only write off a percentage of its use.
No, you cannot write off your Spring Break Trip to Mexico…or can you? There are definitely requirements your trip must meet:
- The trip must be necessary for your business
- The trip must be away from home (so no stay-cations)
- The trip must be an overnight
But if your trip qualifies, you can write off everything from car rentals and hotels to baggage fees and meals. Want more information? The IRS provides a full list of eligible business travel expenses.
14. Car Use
You can deduct the actual mileage or the standard mileage used for business driving. I am a big fan of Mile IQ for this reason. It tracks my miles and allows me to filter drives into personal and business, and even specify for WHICH business I’m driving. If you own or use a company car strictly for business, then you can also write off repairs, operating, and maintenance fees.
Rule #1: Keep your receipts. If you are dining for business (think meeting clients or associates for lunch), then you can deduct up to fifty percent of food and drink purchases. Just be sure to note with whom you were dining on the receipt, too…and how they are associated with your business. Bonus: for a limited time, you can deduct up to 100% of these expenses.
16. Medical Expenses
Doctor’s fees, prescriptions, insurance premiums…all are deductible, and if you are self-employed and pay for your own health insurance, then you can deduct these insurance premiums, too.
This is one of my favorites! If your logo is on it, then you can deduct 100 percent of these expenses. Logo wear, marketing, business cards, signage…so much falls into this category.
18. Client and Employee Parties
This is another one that gets a bit sketchy sometimes. When in doubt, leave it out, but if you are meeting a client or employee and discussing business in a business(ish) environment, you can write it off. Plus, you can deduct as much as 100 percent of the costs associated with employee and client events (think holiday parties).
You can’t write off everything, but if you have a very work-specific costume or uniform that can’t be worn for general use (I’m talking to all my Burlesque dancers out there), then these can be deducted.
20. State Taxes
Not all states have taxes (why do you think I live in Texas now instead of Hawaii), but if you live in a State-tax state, make sure you include the amount you paid as part of your itemized deductions.
Bottom line: Don’t try to cheat the Government. They will win…and they will take everything you have. That being said, don’t pay more than you have to.
If you own a small business, I highly encourage you to seek out the advice of a CPA or accountant! You would be surprised by how much money you can save by working the system to the fullest.
Good luck…and may the odds be ever in your favor.