Top Ten Small Business Deductions
If you’re like many small business owners, your thoughts are already turning towards preparing for tax season.
And an important part of that preparation should be looking for ways to potentially save your business a lot of money: namely deductions!
Need a refresher on what’s deductible? Here are the top 10 small business deductions.
Car and Truck Expenses
Most small businesses use a vehicle, such as a car, light truck or van. The cost of operating the vehicle for business is deductible only if there are required records to prove business usage. In deducting costs, the need to keep records of cost (e.g., gasoline, oil changes) is eliminated if you rely on the IRS standard mileage rate of 57.5 cents per mile in 2015 instead of deducting your actual outlays.
Salaries, Wages, & Contract Labor
While payments that sole proprietors, partners, and LLC members taken from the business are not salaries (they are nondeductible draws), payments to employees are deductible.
Many small businesses use independent contractors to meet their labor needs. The cost of such contract labor is deductible. Be sure that you issue Form 1099-MISC to any such contractor receiving $600 or more from you in 2015 (if payment is made to the contractor via credit card or PayPal, it’s up to the processor to issue them Form 1099-K, but you may want to send your own 1099-MISC for personal protection).
Rent on Business Property
The cost of renting space — an office, storefront, factory, or other type of facility — is fully deductible.
This tax deduction for small business is an allowance for the cost of buying property for your business. It includes the Section 179 deduction for equipment purchases up to $500,000. It also includes 50 percent bonus depreciation.
Items used on a business (e.g., cleaning supplies for a cleaning service) are fully deductible.
Electricity for your facility is fully deductible. Other utility costs include your cell phone charges. If you claim a home office deduction, the cost of the first landline to your home is not deductible. If you have a second line, it is a deductible utility cost.
Deduct state and local sales tax you charge on your goods and services; the amount you collect from your customers is part of your gross receipts, so this deduction is merely a wash. You can also deduct licenses and regulatory fees and taxes on real estate and personal property. Your employer taxes, including the employer share of FICA, FUTA, and state unemployment taxes, are fully deductible. However, for self-employed business owners, the deduction for half of your self-employment tax is not a business deduction; it is an adjustment to gross income on your personal income tax return.
Ordinary advertising costs are fully deductible.
If you or staff members travel out of town on business, the cost of transportation (e.g., airfare) and lodging is fully deductible. You must meet substantiation requirements explained in IRS Publication 463 to claim any travel deduction. However, local commuting costs usually are nondeductible.
A portion of personal expenses of a home are deductible as a business expense if the home is used regularly and exclusively as the principal place of business, a place to meet or deal with clients or customers, or as a separate structure used in the business. The deduction includes both direct costs (e.g., painting a home office) and indirect costs (e.g., the percentage of rent or mortgage interest and real estate taxes that reflect the percentage of business use of the residence).
Fees paid to lease or rent items used in your business are fully deductible.
So this tax season, don’t forget to ask your accountant about these top 10 tax deductions for small businesses and more. The results could really change your bottom line.