Running a small business is expensive and knowing how to correctly take advantage of tax deductions can be the difference between thriving and sinking. Unfortunately, business owners are often preoccupied with the day-to-day requirements of running a company, failing to take advantage of these important opportunities to save.
If you’re a tax professional who’s helping a small business navigate the rigors of tax season, these are some of the most common deductions that I recommend you look for.
Luckily, utility charges like electricity are fully deductible. The same goes for mobile phone charges. Landlines to home offices also fit the criteria, but there’s a caveat; only the second landline to a home office, not the first, can be claimed.
If you’re looking to improve your utility costs, there are resources that can help small businesses find the best deals in their area.
If your client’s small business regularly uses a truck or van, it’s possible to claim the miles driven for deductibles. If you’re confused about how much to claim, I recommend using the IRS’s standard mileage rate, which was raised this year from 54.5 cents in 2018 to 58 cents per mile. Make sure that the small business has detailed records of miles driven and if they failed to keep records last year, encourage them to start in 2019.
There are various tax deductions that relate to employee pay, but it’s important to distinguish employee pay from owners. You can’t deduct payments to LLC members, partners, or sole proprietors because they aren’t technically wages. However, salaries, taxable fringe benefits, wages, commissions, and bonuses to employees can be claimed as deductibles.
Small businesses can claim the supplies related to maintaining and running the operation as deductibles. For example, if they hired a cleaning company at some point during the last year to tidy up the offices, and the company paid for the supplies, it’s possible to claim those supplies as deductibles.
The same goes for items like tablets, postage stamps, etc. Basically, claimable items include those that were used to help maintain the business or facilitate operations.
If the company was forced to make repairs to the property, the cost of those repairs is fully deductible. However, make sure you aren’t confusing repairs with renovations. The distinction is that repairs are made to fix something that was damaged or broken, while renovations are typically cosmetic or structural additions that add to the value of the property.
Legal and Accounting Fees
If you incur any legal fees during the calendar year, those are fully deductible. The same goes for any additional accounting fees that might have been incurred. If you’re struggling with accounting and are attempting to calculate the qualified business income to claim as a deductible, it’s important to use a QBI calculator to be as precise as possible.
While personal trips don’t qualify for deductions, business trips can certainly be claimed. However, the IRS has laid out very strict requirements that need to be met to claim travel as a business deduction. Refer to the IRS Publication to 463 to find out if your small business trips meet the requirements!
It’s no longer possible to claim entertainment costs for a deduction, but meals still qualify. Unfortunately, the IRS will only allow you to claim half of your business-related meals for a deduction, but it’s better than nothing! Remember that this also includes the cost for meals you have while traveling.
Luckily for businesses who own realty, it’s possible to fully deduct your mortgage interest. This is a sizable deduction for many small businesses and it’s a helpful one to keep in mind.
However your small business or client has chosen to advertise, it’s possible to claim the costs incurred as deductibles. It’s hard to understate the importance of a good marketing strategy when trying to get a small business off the ground, and knowing that many of these costs can be claimed should give companies the confidence to spend money on advertising.
I hope you carefully review this list of suggestions. Any and all opportunities to save money, especially if you’re working for or own a small business, should be taken advantage of. Afterall, that’s one of the primary goals of any business: cut costs and maximize profits. Good luck!