Who doesn’t love a good tax deduction? As a small business owner, you should LOVE them, but often small business owners trying to control their own tax journey can overlook expenses that are tax-deductible. It’s pretty easy to identify your obvious business expenses (payroll, rent, printer paper) as tax deductions, but there are some less obvious deductions I want to highlight for you. One of the best ways to identify more deductions is to make sure you have a smart, savvy tax advisor who can uncover all of the deductions for you. When hiring a tax professional, make sure you ask them if they have any experience working with other small businesses in your industry. Some specialize in specific industries. So ask your network who they are using.
Or contact Block Advisors to make it easier for yourself. Block Advisors certified small business tax professionals have experience helping small business owners in a variety of industries, from real estate and development to salons and consulting. And chances are they’ve helped a company like yours.
Below, I’ll outline different types of prints that may not be on your radar:
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Home office: We all have a home office now, don’t we? If you are an employee of a company, this deduction is no longer available to you. For the independent small business owner, however, this deduction can be very valuable! Let’s get that deduction straight. First, the home office deduction applies to taxpayers who use part of their home exclusively and regularly for commercial or business purposes. “Regular use” means that the location is your main place of business; B. where you meet customers or customers during a business day. “Exclusive use” means that the room may not be used personally at any time during the tax year. For example, my home office is my bedroom. I couldn’t claim my home office as a deduction, nor would I try to meet customers here. That would be crazy. How much is this print worth? They take the square footage of the room as a percentage of the total home. Then multiply that percentage by your house costs: rent or mortgage interest, utilities, insurance, etc. It can really add up! There are other rules and options for this deduction. So I strongly recommend speaking to a tax advisor before claiming this as a deduction. Business use of your vehicle: Again, this deduction is not available to you if you are an employee. But if you are self-employed, this can be huge. There are two methods of deducting the business use of your car: the standard mileage rate and the actual cost method. The standard mileage is used to track your business miles driven and then multiply them by a cent-per-mile amount to get the tax deduction. That’s 56 cents per mile for 2021. The true cost method tracks your business miles as part of your total mileage for the year. Then multiply the percentage of business use by all vehicle costs such as gasoline, oil changes, repairs, and insurance. “Note that either method MUST keep track of the kilometers traveled – just keeping your gasoline receipts is not enough,” says Marcie Rahn, Enrolled Agent and Master Tax Advisor at Block Advisors. “Without a mileage log, there is no deduction for vehicle use. And the IRS wants to know not just the mileage, but the date and business purpose of the trip. So keep good records all year round. You’re crazy about it, your mileage at the end.” of the year to reconstruct! There are some great apps out there that let you track your driving with a simple swipe. “
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Health insurance and expenses out of pocket: If you are self-employed, you can deduct the costs of your personal health insurance premiums. However, you must meet certain criteria: 1) Your company must be making a profit, not a loss, for the tax year. 2) You don’t need to be eligible for an employer’s health plan, including your spouse’s * plan. 3) You can only claim premiums for the months in which you were not entitled to an employer plan. Since health insurance can be very expensive, this deduction can make a world of difference. Retirement Contributions: This is one of my favorite tax deductions as it also serves as a tool to prepare for your future – double the profit! This is not the part where I break down the types of retirement plans available to you as a business owner, but I do know that contributions to your own retirement plan and contributions that you have made to your employees’ plans are tax deductible. “Plans like SEP-IRAs can be funded until April 15th. This is one of the few ways you can actually change your tax income after the tax year is over,” says Rahn. “You really want to work with a tax professional to get the most savings out of this deduction.” Depreciation: Thanks to tax reform, entrepreneurs have more options to write off their business equipment such as computers, furniture and machines. You can write off the cost of assets over a period of years or, in many cases, write off the entire cost in the year of purchase. A tax advisor can calculate your options so you can decide what’s best for your business this year and for the future! Education: The IRS allows you to fully deduct education costs if those costs help you maintain your expertise and skills or need to improve your business. This can include training costs such as courses, workshops, seminars, webinars, subscriptions to publications, and books related to your business. Transport to class is even qualified! Note that educational expenses related to a new career or unrelated to your business will not qualify but may be eligible for other non-business tax credits. Interest: If your business has debts, such as a small business loan or credit card, you are entitled to deduct interest paid to the lender or credit card company. If the loan is partly business and partly personal, you can only deduct the portion of the loan that is intended for business use. “You can make tracking easier if you have a dedicated credit card for your business so that you don’t mix business and personal use,” says Rahn. Other deductions: The above is by no means an exhaustive list. There are many other types of business deductions. Don’t forget to include things like advertising and marketing costs, gifts for customers and customers, salaries and wages, business meals, insurance premiums, bank fees, costs of goods sold, legal costs, maintenance and repairs, and moving costs. When I finish all of my pieces in this series please consult a professional in deciding what to and cannot pull off. I would hate it if you missed any deductions and paid too much tax.