Tax season can be overwhelming for small-business owners. Between gathering receipts and navigating tax forms, it’s easy to miss out on valuable deductions that can reduce your tax burden. Claiming all eligible deductions ensures you maximize profits and keep your business financially healthy. Here are 10 common tax deductions you might be overlooking:

Home Office Expenses

You may qualify for the home office deduction if you use a dedicated space in your home for business. If so, you can deduct direct expenses, such as painting or repairs done exclusively for the office space, dedicated business phone lines, and office furniture. You can also deduct a percentage of indirect expenses, like rent or mortgage interest, utilities, homeowners insurance, and property taxes, based on the proportion of your home used for business. The IRS offers two ways to calculate this deduction. The simplified method allows you to deduct $5 per square foot of your home used for business, up to 300 square feet. Alternatively, you can calculate the percentage of your home used for business and apply that percentage to your eligible expenses. Maintain detailed records of your expenses and the square footage of your home office in case the IRS asks for documentation to support your deduction claims.

Startup Costs

It costs money to start a business, but the IRS allows you to deduct some of these costs in your first year of operation. This can include market research, advertising, employee training, professional fees for services like drafting legal documents and creating a business plan, and travel expenses incurred to secure suppliers, customers, or locations for your business. You can deduct up to $5,000 in startup costs and $5,000 in organizational costs, such as legal fees for creating a corporation or partnership and state incorporation fees. If your total startup costs exceed $50,000, the deductible amount is reduced. Any remaining costs that exceed the deduction limit can be spread out over 15 years.

Business Use of Your Vehicle

If you use your personal vehicle for business purposes, you can deduct the costs associated with that use. You have two options to calculate this deduction: using the standard IRS mileage rate or tracking all your vehicle expenses, including gas, oil changes, repairs, tires, insurance, registration fees, and depreciation. For the standard mileage rate, you only need to track your business miles driven. Either way, you must maintain detailed records, including the date, purpose, and mileage for each business trip.

Continuing Education and Professional Development

Investing in your own skills and the skills of your employees is important, and many of these expenses are tax-deductible. These include fees for industry-related courses, costs for attending conferences, professional subscriptions, and the cost to obtain and renew professional certifications and licenses. To qualify, the education expense must be directly related to your business or trade.

Business Insurance Premiums

The premiums you pay for insurance to protect your business are often tax-deductible. This includes insurance for general liability, professional liability (also known as errors omissions insurance), product liability, property, and business interruption. These premiums are considered ordinary and necessary business expenses and can be deducted from your taxable income.

Retirement Contributions

Contributing to a retirement plan helps secure both your financial future and that of your employees, while also offering tax advantages. Small businesses have several retirement plan options, including SEP IRAs, SIMPLE IRAs, and 401(k) plans, each with different contribution limits and eligibility requirements. Contributions to these plans are often tax-deductible, which reduces your taxable income in the year you contribute. Consult a financial advisor to determine the best plan and help understand the tax implications.

Bad Debts

If you extend credit to a customer who fails to pay and you’ve made reasonable efforts to collect, you may be able to deduct these bad debts as a business loss. The debt must be a valid business debt you previously included in your income. You must demonstrate that it is worthless and that you have taken steps to collect it. Maintain documentation of these collection attempts to support your claim.

Software Subscriptions

Most business-related software subscriptions qualify as deductible expenses, including software for accounting, project management, customer relationship management (CRM), cloud storage, and design and editing. If these tools are essential for running your business, they can be deducted as ordinary and necessary business expenses.

Meals and Entertainment

While entertainment expenses, such as tickets to sports events or concerts, are no longer deductible, you can still deduct 50% of the cost of business-related meals. You or your employee must be present, and the main purpose must be to discuss business. It must be considered necessary, directly related, and not extravagant for the business’s needs.

State and Local Taxes

While the 2017 Tax Cuts and Jobs Act limited the deduction for state and local taxes (SALT) to $10,000 per household, this deduction can still be valuable for small businesses, especially those operating in high-tax states. This deduction includes state and local income taxes, property taxes, and sales taxes. Some business structures, like C corporations, are not subject to the $10,000 limitation.

Navigating the world of small business taxes doesn’t have to be daunting. With careful planning, this challenge can become an opportunity to strengthen your financial standing and reinvest in your business. Consider consulting a tax professional to ensure you claim every available deduction.

 

Our team is here to support your small business with expert financial guidance. Contact us today to ensure you’re maximizing your tax savings and planning for a strong financial future.

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