When you own your own business, you know how important it is to get as many business tax deductions, or business tax write-offs, as possible. This list of tax-deductible business expenses will help you claim all of the tax deductions available to you, letting you save as much money as possible.
1. Home office deduction
If you work from a home office or have a dedicated work area within your home, then you may be able to deduct it from your taxes. There are two ways to deduct home office expenses, the simplified method and the standard method.
Using the simplified method, you can deduct $5 per square foot of the area of your home that’s used for business purposes, up to 300 square feet.
Using the standard method to calculate your home office deduction, you’ll need to keep track of all your home expenses like utilities, mortgage interest, home repairs, and rent, then multiply them by the percentage of your home that’s used for business purposes.
2. Legal & professional fees
If you have a lawyer on retainer, or have paid for other professional services for your business, you can deduct those expenses on your tax return. However, it’s important to note that you can only deduct fees for lawyers, accountants, and other professional services retained for your business, not personal use.
3. Advertising & promotion expenses
Rarely do a business’ sales go anywhere without advertising and promotion. Luckily, costs that you incur while advertising and promoting your business are fully deductible. This includes activities like getting a logo designed for your business, printing business materials like brochures and business cards, or sponsoring an event. The only caveat to the advertising and promotion tax deduction is that the expenses you incur must be directly related to your business.
4. Office furniture deduction
Purchasing furniture for your office can provide a tax benefit. The costs of assets like furniture and equipment are typically spread out over the years you’ll use them, due to depreciation rules. But, the IRS provides the following methods to allow for a full-cost deduction in one year:
- De minimis safe harbor: If an item costs less than $2,500, you can choose to expense the assets within the year that they’re purchased.
- Section 179 deduction: This type of deduction lets you deduct up to $1 million in assets that began to be used within that year. Read more about the Section 179 deduction on the IRS website.
- Bonus depreciation: You can also use bonus depreciation to deduct 100% of the costs for computers, appliances, furniture, and other assets.
5. Insurance premiums deduction
Self-employed people that are paying their own insurance premiums can deduct 100% of the cost. This tax deduction is primary for proprietorships, but it has its limits. The deduction can not be more than your business’ net profit. It also can’t be deducted if you were able to get health insurance through a spouse’s job.
6. Startup expenses deduction
It’s possible that you could deduct your startup expenses for your business such as advertising, transportation, consultation fees, travel, employee training and wages, and legal and accounting fees. You can deduct up to $5,000 for startup costs and up to $5,000 for organizational costs. If your deductions are over $55,000 then you have to set up an amortization schedule in order to deduct the costs.
7. Social Security deduction
If you’ve owned your own business for a while, you know that anyone that is self-employed has to pay the full 15.3% of your net profits to social security. Employees have to pay half and the employer pays half, but since you are both, you have to pay the whole thing. The good news is you can deduct half of it on your 1040 form.
8. Travel expenses
The travel deduction doesn’t mean you can deduct your gas costs for getting to work because you choose where you live in relation to your work. However, if you’re attending a conference or other event for your business, you can deduct the travel expenses you incur.
Some IRS-approved business travel expenses include:
- Dry cleaning while on a business trip
- Parking fees or toll fees
- Costs you incur while using your vehicle on a business trip
- Costs associated with business phone calls
9. Business meals deductions
You can deduct 50% of the costs for a meal (food and beverage) if it would normally be considered part of your business or if the following conditions apply:
- The expense is a necessary and ordinary part of your business operations
- The meal should not be unusually lavish or extravagant
- An employee or the business owner must be present at the meal
Keep careful documentation of the meal costs, including the expense amount (hang on to that credit card receipt), who was present at the meal, and their relationship to you.
10. Business use of your vehicle
If you’re using your car or truck for business purposes, you can deduct the costs that come with operating and maintaining your vehicle. Note that any costs associated with using your vehicle aren’t deductible.
You can deduct vehicle expense costs in one of two ways: the standard mileage rate or the actual expense method.
Using the standard mileage rate, you multiply the miles you’ve driven for business purposes throughout the year by the official standard mileage rate for that tax year. The resulting amount is your business tax deductible amount.
When it comes to tax deductions, one general rule is to make sure your records are organized and that expenses are properly documented. This helps you leverage all applicable tax deductions to reduce the amount of taxes you owe. Careful records also prove valuable in the case of an IRS audit. If you’d like help with your taxes or accounting, contact MBS Accountancy! Our staff is here to help you power your business growth with accurate financial data and meaningful financial reporting on the key metrics that matter most to your business.