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Top 10 Tax Write-Offs for Small Business Owners

Top 10 Tax Write-Offs for Small Business Owners

As a small business owner, tax season can be a stressful time. With all of those forms to mail to employees, expenses to track, and checks to write to the IRS, no-one could blame you for dreading the month of April. But beneath the bureaucratic onslaught, there is one shining beacon of hope: deductions, deductions, deductions. For the small business owner, deductions are a world of plenty.

Like everything to do with the IRS, the rules around deductions can be nuanced, so it’s important to do your research, talk with an accountant, and use a good tax calendar to stay on track of regulations and deadlines. Advises Austin-based Certified Public Accountant, David Coffman, “Make sure to keep good detailed records supporting your deductions for at least 6 years, and fill out the proper forms correctly and completely.”

Here are just a few deductions you won’t want to miss:

1. Travel Expenses

Rest assured that when you stay overnight at a hotel while conducting business away from home, that night will be fully tax-deductible. In fact, every night you spend away for business purposes will also be deductible, as will 50% of any meals you eat out (with or without a client in tow), any rental cars and plane tickets, and sometimes even transcription or translation services while traveling abroad.

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Thinking of extending your stay for a little vacation time? As long as the purpose of your trip is mainly for business, you can still deduct your travel costs to and from the destination. “However,” Coffman cautions, “expenses specific to the personal portion are not deductible.”

No matter what, just make sure to keep good track of your receipts regardless of the total (yes, even if it’s below $75).

2. Auto Expenses

Do you use your car for business? Do you own a company car? Some of the costs associated with gassing up and maintaining that car will be deductible. For 2012, you’ll be able to deduct 55.5 cents per each mile driven, as well as all business-related tolls and parking fees. Don’t just eyeball this, especially if you only own one car—it’s a red flag for IRS eyes. Keep track of the exact miles you drive, enter them into your accounting system or hand them to your bookkeeper, and include a detailed description for each recording.

3. Current and Capitalized Expenses

It’s easy to confuse current and capital expenses, so it’s worth defining them separately. Current expenses are things like rent and electricity bills—those ongoing costs that keep both your office and your business up and running. Capitalized expenses, on the other hand, are expenditures like equipment and vehicles. Current expenses are simply deducted from your business’ yearly gross income, while capitalized expenses must be deducted over a number of years. A general rule of thumb is this: if an item has a shelf life of longer than one year, it’s capitalized. That being said, many items such as office supplies and repairs can be deducted as current business expenses, but only after your business has opened its doors. Before that, they’ll be capitalized. Confusing? Maybe, but understanding these distinctions and filing accordingly will be well worth the effort in the end.

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4. Software and Subscriptions

Once upon a time, businesses looking for deductions in the area of software and subscriptions had to depreciate the cost of computer software over three years; see current vs. capitalized expenses. Now, however, computer and software expenses can be cited as expenses up front using the Section 179 election, just like magazine subscriptions.

5. Health Care Costs

Though exact amounts and procedures will differ based on the type of business filing you have, many health care costs are deductible for small business owners. For proprietorships, health insurance premiums are 100 percent deductible on Form 1040 as an adjustment to income, though that deduction can’t be more than your business’ net profit, and the deduction is void if you’re eligible for any other kind of health coverage—including those of your employed spouse. However, if your spouse worked for your business, then his or her premiums are also fully deductible.

Things will be a little different if you’re filed as a C-Corporation. In this case: “Health care costs, including out of pocket expenses, are deductible as a business expense under a health reimbursement arrangement,” says Coffman. You’ll want to contact accountant to get this set up at least in your initial year as a C-Corporation.

6. Bad Debts

It’s never any fun when a client doesn’t pay or a vendor doesn’t deliver, but if you’ve got a bad debt on your rolls, it may be deductible, but only for accrual basis rather than cash basis taxpayers (learn the difference here). Says Coffman, “If an accrual basis taxpayer has billed for his goods and services, he may write off as a bad debt any amounts not collected. A cash basis taxpayer may not write off uncollected fees for services or goods, but may write off the cost of the goods that were not paid for.”

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Unfortunately, this applies only to goods, not to services, which are a lot more difficult to quantify. Alas, you truly cannot recover lost time.

7. Home Office Deductions

Home office deductions are popular among small business people. If you work from home, you can deduct for depreciation, utilities, insurance premiums, mortgage interest and repairs. However, the deduction counts only for that space, and you must use the area regularly and exclusively for business. If you think this is a good excuse to get a break for all of that yard landscaping you’ve been paying for, think again: the rules around this deduction are strict, and it is often a trigger for audits, so learn them well before filing incorrectly.

8. Business and Professional Fees

If you’ve bought business books, paid any fees to lawyers, tax professionals and more, and their service is clearly related to this year’s activities, these all qualify as deductions. However, if these fees relate to future years, they’ll need to be deducted over the life of the benefit they provide.

9. Retirement Contributions

If you’re self-employed and contribute to a SEP-IRA or Keogh, these can all be deducted on your personal income tax return.

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Adds Coffman, “This is one of the few areas where you can claim a deduction in the current year for amounts paid in a later year. You get to see the effect of the deduction before you actually commit to it. Some plans, however, must at least be established prior to the end of the year.”

10. Phone Calls

Business-related phone calls are fully deductible, even if you conduct them on your personal cell phone or home phone. As with mileage, you just have to keep good records that separate the business calls from the personal ones. A good way to do this is to circle business calls and write a description on your bills, total them up and keep a copy to be added into your final returns. If you add a second line or buy a cell phone that’s dedicated primarily to business, you’ll be able to fully deduct any regular fees and charges associated with the line.

Take-Away

When tax season comes around, there’s a lot for small business owners to think about, and just as many deductions to benefit from as well. Do your research, keep abreast of the latest regulations, and contact a good accountant early in the year to get it done right. Don’t wait until the last minute, or you may miss out!

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Last Updated on March 29, 2021

5 Types of Horrible Bosses and How to Beat Them All

5 Types of Horrible Bosses and How to Beat Them All

When I left university I took a job immediately, I had been lucky as I had spent a year earning almost nothing as an intern so I was offered a role. On my first day I found that I had not been allocated a desk, there was no one to greet me so I was left for some hours ignored. I happened to snipe about this to another employee at the coffee machine two things happened. The first was that the person I had complained to was my new manager’s wife, and the second was, in his own words, ‘that he would come down on me like a ton of bricks if I crossed him…’

What a great start to a job! I had moved to a new city, and had been at work for less than a morning when I had my first run in with the first style of bad manager. I didn’t stay long enough to find out what Mr Agressive would do next. Bad managers are a major issue. Research from Approved Index shows that more than four in ten employees (42%) state that they have previously quit a job because of a bad manager.

The Dream Type Of Manager

My best manager was a total opposite. A man who had been the head of the UK tax system and was working his retirement running a company I was a very junior and green employee for. I made a stupid mistake, one which cost a lot of time and money and I felt I was going to be sacked without doubt.

I was nervous, beating myself up about what I had done, what would happen. At the end of the day I was called to his office, he had made me wait and I had spent that day talking to other employees, trying to understand where I had gone wrong. It had been a simple mistyped line of code which sent a massive print job out totally wrong. I learn how I should have done it and I fretted.

My boss asked me to step into his office, he asked me to sit down. “Do you know what you did?” I babbled, yes, I had been stupid, I had not double-checked or asked for advice when I was doing something I had not really understood. It was totally my fault. He paused. “Will you do that again?” Of course I told him I would not, I would always double check, ask for help and not try to be so clever when I was not!

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“Okay…”

That was it. I paused and asked, should I clear my desk. He smiled. “You have learnt a valuable lesson, I can be sure that you will never make a mistake like that again. Why would I want to get rid of an employee who knows that?”

I stayed with that company for many years, the way I was treated was a real object lesson in good management. Sadly, far too many poor managers exist out there.

The Complete Catalogue of Bad Managers

The Bully

My first boss fitted into the classic bully class. This is so often the ‘old school’ management by power style. I encountered this style again in the retail sector where one manager felt the only way to get the best from staff was to bawl and yell.

However, like so many bullies you will often find that this can be someone who either knows no better or is under stress and they are themselves running scared of the situation they have found themselves in.

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The Invisible Boss

This can either present itself as management from afar (usually the golf course or ‘important meetings) or just a boss who is too busy being important to deal with their staff.

It can feel refreshing as you will often have almost total freedom with your manager taking little or no interest in your activities, however you will soon find that you also lack the support that a good manager will provide. Without direction you may feel you are doing well just to find that you are not delivering against expectations you were not told about and suddenly it is all your fault.

The Micro Manager

The frustration of having a manager who feels the need to be involved in everything you do. The polar opposite to the Invisible Boss you will feel that there is no trust in your work as they will want to meddle in everything you do.

Dealing with the micro-manager can be difficult. Often their management style comes from their own insecurity. You can try confronting them, tell them that you can do your job however in many cases this will not succeed and can in fact make things worse.

The Over Promoted Boss

The Over promoted boss categorises someone who has no idea. They have found themselves in a management position through service, family or some corporate mystery. They are people who are not only highly unqualified to be managers they will generally be unable to do even your job.

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You can find yourself persistently frustrated by the situation you are in, however it can seem impossible to get out without handing over your resignation.

The Credit Stealer

The credit stealer is the boss who will never publically acknowledge the work you do. You will put in the extra hours working on a project and you know that, in the ‘big meeting’ it will be your credit stealing boss who will take all of the credit!

Again it is demoralising, you see all of the credit for your labour being stolen and this can often lead to good employees looking for new careers.

3 Essential Ways to Work (Cope) with Bad Managers

Whatever type of bad boss you have there are certain things that you can do to ensure that you get the recognition and protection you require to not only remain sane but to also build your career.

1. Keep evidence

Whether it is incidents with the bully or examples of projects you have completed with the credit stealer you will always be well served to keep notes and supporting evidence for projects you are working on.

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Buy your own notebook and ensure that you are always making notes, it becomes a habit and a very useful one as you have a constant reminder as well as somewhere to explore ideas.

Importantly, if you do have to go to HR or stand-up for yourself you will have clear records! Also, don’t always trust that corporate servers or emails will always be available or not tampered with. Keep your own content.

2. Hold regular meetings

Ensure that you make time for regular meetings with your boss. This is especially useful for the over-promoted or the invisible boss to allow you to ‘manage upwards’. Take charge where you can to set your objectives and use these meetings to set clear objectives and document the status of your work.

3. Stand your ground, but be ready to jump…

Remember that you don’t have to put up with poor management. If you have issues you should face them with your boss, maybe they do not know that they are coming across in a bad way.

However, be ready to recognise if the situation is not going to change. If that is the case, keep your head down and get working on polishing your CV! If it isn’t working, there will be something better out there for you!

Good luck!

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