Being an entrepreneur in this turbulent economy definitely has its challenges. Rising costs of raw materials, a surging competition, or simply administrative red tape can all have a negative impact on the health of your business. In some cases, business owners are just simply happy to keep their doors open for another fiscal year.
Come tax season, everyone should try and get a little something back, and businesses are no exception. Let’s be clear however! Tax deductions won’t save a floundering business from closing up shop – but to the shrewd business owner, they can make the difference between a good year and a great year.
Note: The deductions listed below may not be recognized in your area. Be sure to consult a tax specialist for more information on how you can save your business money through prudent financial planning.
- Networking is Important, but so is Getting a Deduction
Remember that expenses like membership fees to professional organizations are completely deductible, so you’ll never have to make the hard choice between getting the inside edge on a potential client or paying annual membership in order to attend networking events. Professional fees and licenses are also deductible.
If your business owns real estate, be sure to claim the entire amount of interest you paid during the year.
- Maintenance and Repair Fees
If you spend money keeping your machinery and equipment in proper working order these amounts are generally deductible. Just be mindful that you might run into exceptions if the repairs in some way add additional value to the property.
- Meals and Entertainment
Meeting a client? Attending a business lunch? If you find that you regularly engage in these actvities, know that you don’t necessarily have to pay completely out of pocket. You can claim a meals and entertainment deduction equal to 50% of the amount you paid for attending these activities. Claiming a $40 lunch may not sound like a big deal, but over the course of the year it adds up to more than you might think.
- Do You Use Your Vehicle as Part of Your Daily Operations?
Let’s face it – if you’re using your personal vehicle to get the job done and keep your clients happy, you should, be compensated for mileage, gas, and wear and tear.
- Bad Debt
If you have a customer that hasn’t paid their due for your products or services or is simply taking too long, your accounts receivable is at risk of becoming bad debt. In spite of the name, bad debts aren’t “all bad” as these amounts can be deducted. Nobody likes bad debts, so if you’re keen on avoiding them altogether, consider factoring your accounts receivable. Factoring entails that you sell your accounts receivables to a third party company (at a discount) and they worry about collecting from your client. While you may not be collecting the full face value of what you are owed, the tradeoff is the certainty that you will in fact be paid. Remember too that the cost of factoring is fully tax deductible.
- Travel Deductions
Depending on the nature of your business, you may spend a considerable amount of time and money on the road meeting clients, stakeholders, suppliers, etc. That said, any amounts paid for transportation and lodging while out of town on a business trip is deductible. Sadly, regular local commuting is not.
- Getting Your Company’s Name Out There – Advertising
Surprisingly, many small business owners don’t view the cost associated with promoting their business in terms of after tax dollars and therefore, they don’t engage in advertising. Tax deductibility can dramatically lower the net cost of promoting your business. Yes, advertising can be a lot of work, but the payoff can be huge.
Remember, it’s always important to talk to your accountant. After all, what may be an acceptable deduction one year, may not be one the next.
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