Anyone running a small business knows that taxes can be a headache. If you’re lucky enough to have an accountant, that makes things a little easier, but if you’re just starting out, it can be a bit overwhelming. It can also be extremely expensive—it’s frustrating to have to turn over a significant chunk of your hard-earned money to the government.
However, if you plan ahead, you can reduce the pain. That’s where expenses come in. If you know what kind of expenses to deduct in your taxes, you’ll be able to save quite a bit of money.
It can be challenging to decide what to claim as a business expense when you file—but if you make sure to claim the items on this list, you’ll maximize your chances of getting money back while still following IRS rules.
Office and office-related products
If you pay rent for an office, make sure to include that as a business expense. And though it might surprise you, even if you’re working from home, you can write that off too—just make sure that your office is distinct from your living area, and measure your work area and divide by the square footage of your home—you can claim that percentage of your rent or mortgage and utilities.
Since furniture, office equipment and supplies, and technology also make up part of your office, you can deduct these as expenses as well. In addition, Section 179 provides a tax break for new computer software, and you can deduct full costs as well for business and industry-related magazine subscriptions. If you haven’t already, we highly recommend our recent blog post all about Section 179.
And make sure to expense telephone and internet fees—they’re deductible, too.
Deducting auto expenses is common for all businesses, not just small ones. While driving for business, ensure that you document dates, mileage, tolls, parking costs, and the purpose of each trip. This way you’ll have all the information the IRS needs.
And make sure you differentiate between business and personal trips—if you don’t, you may have some explaining to do.
Additionally, if you or any of your employees have to travel far—by plane to a conference, for example—then you can write off expenses such as airfare, hotel fees, car rental, and laundry costs. Conference fees and taking out clients for a meal can also be covered (though meals are only covered up to 50%). But keep in mind that entertainment such as visits to amusement parks or tourist attractions cannot be deducted.
Insurance and social security
If you are self-employed and covering your own health insurance, these costs are 100% deductible. Make sure you expense them. If you have long-term insurance, you can cover this too.
In addition, if you’re saving for your retirement, you can deduct that as well.
However, when it comes to social security, one of the drawbacks is that you’ll have to pay double social security if you’re self-employed and have your own business. So ensure that you deduct half of that contribution when you’re completing your 1040, because you have the right to, and you won’t lose additional money that way.
Additional Expenses to Deduct
Although we’ve listed the main expenses to deduct while completing your taxes—office and office-related products, travel and mileage, and insurance and social security—there are a few other expenses you’ll want to ensure you deduct as well.
For example, did you know that a direct gift to a client is 100% deductible? And that if you make any charitable contributions, you can deduct those too?
Additionally, if you spend any money on advertising—this is, after all, a necessity for many businesses—you can expense that, too. The same goes for professional and legal expenses, and association dues, as these also are necessary for running your business.
You can also expense bank charges and interest, and interest on loans.
And don’t forget about your employees’ salaries, their pensions (what you contribute), and any other benefits you pay for. If you educate and train either yourself or your employees, you can deduct these costs as well.
Deciding what your business should be expensing can be a tricky task, especially if you don’t have an accountant to guide you through the process. But there are many ways you can benefit from deductions on your taxes as a small-business owner, and it will get easier each year.
The fact is that as long as you keep track of your expenses, you’ll be able to deduct many of them by the time tax season comes around. As you measure the size of your office, or add up the mileage you’ve incurred driving around to meet with clients, remember that this is a wonderful opportunity for you to save money with your small business.
If you’re interested in learning more about financial planning ahead of the 2018 tax season, feel free to reach out to Currency’s team of experts.