Every year in January, small business owners get going through invoices and tax help manuals to see if there is any possible tax deduction they can claim. The process gets a small business to pay more than the money saved. There are so many deductible expenses that small businesses can use. Sometimes a business may have a negative tax amount which it can use for years depending on the requirements by taxation authorities. If you own a small business following are some deductible expenses for you to consider before you finalize your tax return.
Business vehicle expense
Your vehicle expenses include depreciation, maintenance, fuel, parking, tolls, etc. you can use the IRS mileage rate for this purpose. The mileage rate for business travel is 54.5 cents for every mile traveled for business. If you are using your personal vehicle for delivering business-related products keep a track on the mileage you drove for business. Compare your vehicle expenses to see which way gives you a higher deduction. Generally, if you travel a lot then the rate per mile may be an option for you, in case your vehicle needs lots of maintenance then you may just subtract your actual expenses.
If you are working from home or self- employment then you may divide your space expenditure. This is allowed as a deductible expense. You must have a designated official space at home to qualify for this deduction. Calculate the area of your designated workspace to the total living space. Divide the direct and indirect space expenses including rent, utilities, etc. proportionately. This will account for a deductible expense. Use IRS literature or speak to a professional to help you in making reliable deductible expenses.
As a small business, if you buy a piece of new equipment you can deduct 40% of its cost as depreciation I the first year. You can keep a check on this deduction as changes in this are expected in 2019. Your equipment must qualify as an asset for this deduction. Land, inventory and heating and cooling units are not considered for this deduction.
Salaries and Employee Benefits
Salaries and wages are deductible expenditures. You can subtract salaries, wages, bonuses, meal coupons, and allowances as a deductible expense from your revenue. If you pay performance-based bonuses, health allowance, profit sharing, life insurance, educational allowances or any other compensational charges all account for deductible expenses. If you have commission-based workers the amount of commission paid is also a deductible business expense.
If you are paying for employee child care or daycare expenses that too are deductible business expenses. The cost of employee training and education also makes a part of deductible business expenses. If you conducted a business based workshop or seminar to educate your employees or promote your business that too is a deductible business expense.
Employees and Client Entertainment
Entertainment expense is also a deductible allowance if done concerning the business. Business get-togethers, meals, social and recreational events all are allowed as a deductible business expense. Clients’ meal and entertainment are a deductible amount to the extent of 50% provided that at least one employee is present in the meeting and the meal served was not lavish.
Business Furniture, Fixtures and Equipment, Renovation, Office Supplies
If you buy furniture for your business use you can choose the deduction pattern you want to follow. You can deduct the whole cost for the year it was purchased or you have the option of depreciating it over seven years. IRS has a set of regulations for you that sets the rules for your choice. So go through the rules to see which the right option for you is.
If you had a renovation of your workplace you can deduct it as an expense. Office supplies are also another deductible expenditure. It includes office stationery, other specific business-related supplies. You can keep a record of postage stamp charges, packing material, etc. and deduct it from your income. Even if you utilized goods that you produced in your business those unpaid goods are also allowed as a deductible business expense.
If you buy patent and copyrights for your business with a definite life you can amortize the cost over the period mentioned in IRS. Besides, you are also allowed full deduction of the amount of software you buy for your small business as a deductible business expense.
Travel and Communication Cost
All the cost involved in commuting for business purposes is a deductible business expense. Your business trips will also include the cost of boarding and lodging, food, using cabs, mobile phone expenses all are to be recorded so that it can be used ASA deductible expense.
Bank Charges, Interest Payments, Mortgages Interest
All the charges related to different business transactions are deductible business expenses. All the transaction costs with business, charges on the use of ATM, bank charges of cheques and money transfers, interest payments on a loan, interest on a mortgage all are deductible expenses.
Carry-forwards from the previous years
In case you incurred capital losses in your small business you can carry forward those losses to the coming years as a deductible expense.
The expenses mentioned in the list are not exclusive but the point is that you must keep a record of all your business expenses so that you can deduct all allowed expenses and your tax payable goes down by a significant amount.