According to a survey by QuickBooks, only 56% of small business owners take full advantage of tax deductions. A new year brings new guidelines for tax deductions as well as opportunities to learn how you can maximize your deductions as a small business owner.
A tax deduction is a business expense you can use to lower your taxable income. The Internal Revenue Service (IRS) guidelines require that deductible business expenses be both ordinary and necessary, which means they must be common and acceptable for your line of work.
Common Business Tax Deductions
Common tax deductions for small businesses include:
- Work-related car use including maintenance, mileage, and parking
- Office expenses including rent and utilities
- Software used for your business
- Health insurance premiums (self-employed)
- Business phone bills
- Continuing education courses or education related to your field of work
- Business-related travel expenses including flights, rental cars, hotels, etc.
- Postage
- Business insurance
- Business bank fees and interest
- Depreciation for long-term investments like office buildings
- Professional fees including legal, accounting, and bookkeeping services
- Salaries and benefits for your employees
- Charitable contributions to a qualified 501(c)3
- Advertising and promotion expenses
- Client entertainment including meals at restaurants for business purposes
- Startup expenses including marketing, travel, and education expenses related to your business
- State and local taxes
Home-Based Businesses
Many entrepreneurs and freelancers work from home. Fortunately, home-based businesses can take advantage of many of the same deductions listed above. Home-based businesses can also deduct the cost of having a home office if it is used solely for work related to the business. According to IRS guidelines, these may include mortgage interest, insurance, utilities, repairs, maintenance, depreciation, and rent.
Recordkeeping
It is important to keep accurate receipts and records for all business expenses so all deductions you qualify for can be substantiated. Most businesses use accounting software such as QuickBooks to assist them in keeping accurate records. Using QuickBooks, you can even keep digital copies of your records including bills, receipts, and statements right in the platform.
Whatever recordkeeping method you use, your supporting documents should identify the:
- Payee
- Amount paid
- Proof of payment
- Date incurred; and
- A description of the item purchased or service received that shows the amount was for a business expense
For more information about records you should keep for your business, read this recordkeeping guidance from the IRS.
Tax Planning
Tax advisors have their pulse on the latest federal and state tax guidelines and the implications they may have on your deductions. Your small business can benefit from the insight of a tax advisor. Contact Gift CPAs for more information on how your business can benefit from tax deductions and on our full scope of accounting and business services.
We have years of experience working with small businesses to help with bookkeeping, taxes, and other business needs. Make an appointment to meet virtually or at one of our five locations in Harrisburg, Mechanicsburg, Myerstown, Ephrata, or Lancaster!
