To be as profitable as possible, don’t overlook any small business tax write-offs.
In order to take advantage of small business tax deductions:
- Keep good records
- Hire a tax accountant
- Pay attention to deadlines
Let’s discuss 9 categories of small business tax write-offs. Note that there is some overlap.
9 Small Business Tax Deductions
1. Business Vehicles
- Purchase or lease of car, truck, van
For mileage, you can use the actual cost or the standard rate. The standard mileage rate increased for the 2019 tax year to 58 cents per mile. NOTE: You can’t use the standard mileage rate if you have used the depreciation method under Modified Accelerated Cost Recovery System (MACRS).
There are some nuances to mileage write-offs. Here’s an example from a small business Redditor:
If you go from your home to your first worksite, that’s not a write-off as the IRS considers that just going to work. Same with going home. But if you go from the worksite to Home Depot, then back again, that’s a write off. If you then go from Site A to Site B, that is also a write off for gas/ depreciation on your car. (Source)
2. Home Office
You can write off the portion of the expenses that apply to the office. For example, if your office is about a 10th of the square footage of the home, you write off a 10th of the expenses.
- Mortgage interest
Home office rules are complex. As such, they are a common small business tax pitfall. Know IRS rules.
For example, you need a dedicated area where you work. If you take business calls throughout the day in several areas of the house, it doesn’t mean you can write off the expenses for the equivalent square footage.
- Office supplies
TIP: Don’t assume a credit card statement is sufficient proof of a business expense.
A credit card statement shows the name of a vendor, amount of the sale, and date. But it doesn’t show the item purchased. Print off the actual order to verify that the item purchased was a qualified business expense.
- Equipment insurance
- Malpractice insurance
- Auto insurance for business vehicles
5. Business Services
- Payroll processors
- Cleaning services
- Bank fees
- Marketing services
- Travel expenses
- Rental car
TIP: Have employees fill out a W-9 BEFORE you pay them.
7. Work-Related Training/Education
If you take a course to learn QuickBooks or other business skill, you can write off the expense.
8. Unreimbursed Theft
If your business is the victim of theft, you can generally off any cost that was not reimbursed by insurance.
9. Charitable Donations
You can donate money, real property, or supplies.
NOTE: The organization must qualify under IRS rules. Donating your time cannot be deducted.
3 Small Business Tax Deduction Tips For Newbies
1. Don’t Neglect to Hire a CPA Because You Want to Save Money
As early as possible, get a CPA. They will catch beginner mistakes that can plague you for years.
Get a bookkeeper who specializes in your type of business to set up your books or pay a CPA to set them up and take a few hours to fill you in. Like high quality materials and good contractors, you pay once and get years and years of savings and benefits. (Source)
2. Use an App to Scan Receipts
Use a document scanning app on your phone to scan and save receipts. Organize in general expense categories. File by tax year. In the app, you can easily locate any receipt you’ve scanned. NeatDesk, Expensify, Scanner Pro, and Evernote Scannable are popular small business apps.
3. Use Google Maps if You Forgot to Track Mileage
A common rookie mistake is not tracking mileage your first year in business. Some entrepreneurs don’t think about mileage until it’s time to file their business taxes. Though many of us curse the fact that Google knows our every move, this is one instance where it comes in handy.
I look on Google maps and track them on a spreadsheet. All of my receipts show where I went and when. Invoices show which client I went to. I can look at my location history in Google. It tells me where I went and how long I spent there. Doing that once a month or so really helps when I forget about all of the little trips I took. They add up quickly, especially if you have a home office. (Source)
It may seem overwhelming at first, but once you get into the habit of tracking expenses, it will become second nature.
By Liz Strikwerda
NOTE: The content provided on this website is for general guidance and informational purposes. This article is not intended to provide legal, business, or tax advice.