Maybe you already filed your taxes and are wondering, “did I take advantage of every possible deduction?” Or, perhaps you’re running against the clock and hoping you’ve given yourself the best advantage possible. Either way, small business taxes, particularly deductions, can be complicated.
However, taking the time to make sure you’re leveraging all the right deductions can save you thousands of dollars each year. And while there are many commonly known tax deductions, there are a few that remain a mystery to many filers.
Don’t worry. If you’re reading this after you’ve filed, don’t let tax prep remorse get you down. Now is a great time to start a document and collect information for next year, when you get to do it all again.
7 Secret Tax Write-Offs for Your Small Business
1. Educational expenses
A well-educated workforce can be an invaluable tool in your on-going success. And though education and training needs may vary from company to company, they often share one thing in common – they are deductible.
This includes things like seminars, workshops, and other development or skill-driven opportunities as well as tuition payments, workbooks, etc.
Of course, don’t forget that you, as the filer, can also deduct the cost of some educational expenses, including the cost of workshops, seminars, books, magazines, and other subscriptions that are directly related to your business.
2. Regulatory and licensing fees
While not every business is subject to local regulations and licensing practices, many are. Unfortunately, state and local permits, licenses, and other regulatory documentation or practices can take a toll on your wallet – especially if you’re just getting started.
The good news is that the associated fees are typically considered a necessary business expense and therefore deductible.
3. Home office costs
If you run a business out of a stand-alone space, you probably already know you can deduct things like rent and utilities. However, small business owners who choose to do business out of their house can also take advantage of similar deductions.
If you’re working out of your home and want to deduct costs, then there are some IRS-provided requirements that you’ll need to meet. Depending on your specific space and nature of your business, it can get a bit complicated, so it’s important to directly consult IRS documentation.
However, there are some basic requirements that can help you determine if it’s something worth looking into.
For one, the room you consider your “office space” must be used exclusively for work, that means a room that doubles as a playroom or reading room won’t cut it.
Secondly, it must be considered your primary place of business, so if you have an office and you just do some work at home here and there, it won’t qualify.
It’s also worth noting that this can include expenses for things like painting and repairs as well as indirect expenses like a portion of your insurance, utilities, etc.
4. Wireless phone service bills
More and more people are opting to conduct business over cell phones as opposed to investing in a landline. And while some may choose to get a second phone number for business use, many business owners find themselves relying on their personal phone to field business calls.
Just because it’s your personal phone doesn’t mean you can’t deduct a portion of the cost on your business taxes. If you’re using it to make managing your business, you can deduct a percentage of the bill based on total usage.
For example, say you and receive make two-hundred calls a month and fifty of them are business specific. Since 25 percent of usage is business specific, you would be able to deduct 25 percent of your wireless bill for that line.
5. Petty Cash Purchases
When we think of deductions, we often think of large items or primary goods and services, but there are plenty of smaller purchases that, over time, can add up to a significant annual expense.
For example, you may choose to grab a few coffees for employees at a morning meeting or send someone to an office supply store for a small yet out of cycle purchase.
Many businesses choose to make these purchases using what’s considered petty cash.
Traditionally, this is a small amount of cash stored in a till, but in recent years, the popularity of card transactions has created “petty cash” cards.
Either way, if you have a petty cash system, you can likely use it as a deduction – just make sure to keep track of receipts.
6. Professional & consultant expenses
Did you turn to a professional to get your taxes done? Run a contract by an attorney? Have employee handbooks printed? Many of those expenses can represent deductions, as long as they are reasonably necessary to operations.
7. Automobile expenses
Most small business owners know that they can deduct mileage or gas expenses, but those who rely on their vehicle as a primary business resource can also deduce things like maintenance, registration, tolls, and parking fees.
If you travel a lot for business, those expenses can certainly add up. So, if you’re using your car for business purposes, then keep track of any related expenses, like those mentioned above.
That said, it’s important to note that your drive from home to the office and vice versa is not deductible. However, if you work primarily out of your home and you leave for work purposes, like to meet a client or drop packages off at the post office, then you can deduct those expenses.
It’s All About Documentation
If you’re reading this and want to start prepping or next tax season, now is a good time to implement a solid documentation system. There are plenty of apps, like Expensify and Zoho, that can help you do so.
When in doubt, just keep the receipt, document and note the travel expenses, and write down basic transactional information, like date, amount, and recipient.
If you do get audited, you’ll have a paper trail to support your deductions. And if you’re not sure if it’s deductible in the first place, then you can work with your accountant to determine what receipts and documentation are worth keeping and what ones you can get rid of.
When it comes to small business tax deductions, it’s far better to over document than under document.
Deductions can help make tax time more bearable, and for many, they’re the single difference between receiving a return and owing thousands to the IRS. While some deductions are obvious, others may be a bit more nuanced. The key to getting the most of your annual tax deductions is to know what options are available and to diligently record your expenses.
This article was originally written on April 4, 2019.