Tax deductions for small businesses are crucial to protecting your profits. Deductions make necessary expenditures hurt just a little bit less and can quickly add up to significant savings. There is a wide variety of expenses that are deductible and non-deductible, so it can be difficult to discern if every expenditure is eligible. Below we’ll detail some excellent small business tax deductions that your business might benefit from!
Are You Deducting All Business Expenses?
Unless you’ve gone through some formal accounting training or education, you just won’t have the knowledge needed to properly claim all business deductions. Even worse, many businesses accidentally claim a deduction when they aren’t actually eligible to receive one. It’s very important to make sure you are only taking the right deductions because otherwise this exposes you to a high risk of being audited.
During normal business operations, you will likely have some expenditures that you can’t avoid paying. Taxes and rent are two common bills that nearly every business is responsible for. Beyond this, there are extraordinary expenses that are not associated with operating your business on a daily basis.
Even though these expenses are extraordinary in relation to not being an everyday expenditure, they must be commonly-incurred within your industry. Furthermore, business expenses must directly contribute to your ability to generate a profit, but not towards your calculation of cost of goods sold. And when it comes to claiming deductions for something you use for both work and personal use, you need to make sure you aren’t claiming 100% of that expense.
The area in which you’d likely run into problems with determining how much of a cost to allocate as a deduction is with technology and related equipment. You absolutely can deduct the cost of technology you purchase for work. This includes a wide variety of items, like a laptop, smartphone, camera, audio equipment, or any related supplies.
Another related business expense includes any technology service fees you pay. Picture bills like your internet and phone service (both landline and mobile). Individually these may not be expensive, but across the course of a year this adds up to a significant cost, meaning great savings for you!
Regardless of what technology expense you are paying for, make sure that you understand how often you use it for work. If you’re going to claim 100% of your internet service bill, then you need to exclusively use the access for work. This doesn’t mean you can’t claim the expense at all, but instead need to choose a smaller allocation percentage. Better safe than sorry is definitely a mindset that helps with assigning a portion of cost.
You can also claim small business tax deductions for costs associated with acquiring new clients. The good news is that this label is extremely generalized, meaning that there are several different costs that can be classified as a client acquisition cost. In particular, the costs you are most likely to see to earn new clients include money used to research customers, travel costs, and half of the bill for any meals you have with a potential client.
The main complexity with claiming deductions for client acquisition is being able to distinguish between work and pleasure. If you own a business that entails often meeting prospective clients face-to-face to win them over, then wining and dining will definitely be a requirement.
However, it can be very tempting to spend some leisure time on business trips. This won’t prevent you from claiming deductions, but you should only be taking them on days where you are actually working.
When you go to actually file your taxes, you may find that none of the classifications for business expenses fit your situation. This doesn’t outright exclude the expense from being deducted, but it will instead need to be treated as a miscellaneous expense. Miscellaneous expenses are anything that classify as a business expense but don’t qualify for any listed categories.
Many businesses will never have miscellaneous expenses, but there is still a chance that you will. You may not experience huge savings on each individual cost, but when you apply the mindset of trying to deduct every possible cost, you will inevitably increase your bottom line. Here are some common business expenses to file as miscellaneous:
- Membership Fees – If you have any monthly or annual subscriptions that are a requirement for your business, they qualify as a miscellaneous expense. However, this doesn’t apply if you use the membership for personal use. Any subscriptions to trade journals for your industry can also be used.
- Bank Fees – Costs that come from your financial institution are also miscellaneous. Any fees that you pay for necessary services, late payments, or overdrafting are all deductible. This also includes convenience fees charged for accepting credit card payments.
- Licensing Fees – Any fees you pay to keep your business licensed also work. In addition, any cost associated with conforming to government regulations can also be deducted.
- Petty Cash – You can actually claim the expenditures made with petty cash from your business. While your purchases may not always directly increase profits, they are used to directly benefit you and your employees.
Thorough Tax Advice
If you’re dedicated to spending the time necessary to find all applicable business deductions, then make sure you carefully consider all of your expenses. Many smart business owners don’t know or think to claim small business tax deductions for technology, client acquisition, and miscellaneous expenses. These are all great ways to save extra money, but remember to allocate less than 100% of the cost if you also use service or product for personal use too.
You can figure out small business tax deductions on your own, but that will likely take up more of your time than it is worth. For a cost-friendlier solution, you can always turn to experienced tax professionals to help you save the most money possible! Evergreen CPAs have decades of experience in small business tax deductions and can figure out a solution custom-tailored for your business needs. Reach out to us today to see how we can help you save!