As a business professional, you’re likely aware of the many deductions that you may be entitled to when filing your tax return. Almost anything you buy for the business can be deducted, as long as it is necessary to the business. Also, the cost has to be sensible. For small businesses, the deductions can really add up and help save some on your bottom line. Think of it this way: Your business falls in the 30% bracket and you buy a $1,000 computer. You can save $300 in a tax deduction as long as the computer is used for business purposes. You aren’t eligible to claim a deduction on a personal expense.
Some of the most common deductions are:
- Office Costs: Maintaining an office for a business can lead to serious deductions. You can deduct rent and utilities, and if you work from home, you may be able to deduct a portion of your monthly rent if you don’t own your home. Be sure that your home office meets all the requirements so they can be deducted.
- Travel Expenses: Business related travel can be deducted as long as the trip is spent doing business. You may be able to deduct airfare, lodging, and other costs. Meals you take during business are 50% deductible. If you organize your trip correctly, you may even be able to deduct expenses on a trip that is half business and half personal.
- Transportation: The most common deduction for businesses is car and truck deductions. You may deduct all the driving you do for business purposes, except the drive to and from your home to your place of work. You can either itemize your expenses or opt for the standard deduction of .56/mile. The standard deduction only requires you to keep track of your miles, instead of gas and repair costs.
- Meals/Entertainment: In the past, businesses could write many outings off as an expense. Recently, though, the IRS has ended such deductions, unless you have a real legitimate business reason to attend the event. Also, you have to have an in-depth business conversation before, during or immediately following the event.
- Depreciation: Certain property, such as cars, furniture, and computers are subject to depreciation, and you may be able to claim the cost over time, little by little. You’re not always required to depreciate thanks to the IRS Code Section 179. This allows small businesses to deduct the whole cost of the property, creating a larger deduction all at once.
- Supplies: If you buy items needed to keep your business operating, you can deduct them. Simple supply costs like rubber bands and paper clips count, too, so keep those receipts.
- Legal Costs: Most likely, you’ve probably used professional legal services at some point during the tax year. IF you’d paid for these services, you can deduct the expense as long as it deal with the business directly.
- Insurance: Liability and property insurance can be deducted if the policies apply to the business. If you work from a home office, you may be eligible to deduct part of your homeowner’s insurance. Self-employed individuals can deduct expenses from health insurance, as well.