Congratulations on starting your own business! You know by now how many expenses can pile up just to keep things running. This is the time of year to get some of that money back. Deductions can be a simple way to save money, but it is important that you keep careful track of your business accounting throughout the year with an Accountant or tax software. We've collected a list of 10 tax deductions that can help your business save money during tax season. For more detailed information go to Irs.gov. *
Advertising and Promotion
If your business spends money on advertising and promotion, make sure you keep track of these expenses. The cost of advertising and promotion is deductible. Did you hire someone to design a business logo, or maybe you printed some business cards or brochures? You can write these off! Other expenses can include: sponsoring an event, launching a new website or purchasing ad space in print or online media.
You can generally write off a portion of qualifying food and beverage costs. A couple factors are required to be eligible for the deduction: The expense must be a necessary part of carrying on your business, it can't be too lavish, and the business owner or an employee must be present. You can also deduct a portion of the cost of providing meals to employees. Meals provided at office parties and other outside work gatherings are also deductible. Be sure to keep documentation to outline each expense, including the date and place of the meal, and the business relationship of the person you dined with. Save your receipts!
You should have separate bank accounts and credit cards for your business. If your bank or credit card company charges annual or monthly service charges, transfer fees, or overdraft fees, these are deductible. You can also deduct merchant or transaction fees paid to a third-party payment processor, such as PayPal or Stripe.
Flagship Bank has a number of options to serve your business banking needs. Talk to one of our bankers for more information.
Do you use your vehicle for business? If you use your vehicle solely for business purposes, then you can deduct the entire cost of operating the vehicle. If you use it for both business and personal trips, you can only deduct the costs associated with business-related usage. You can track this two ways. The Standard Mileage Rate multiplies the miles driven for business during the year by a standard mileage rate (ex. Beginning January 1, 2020, the standard mileage deduction is $0.575 per mile). The Actual Expense Method tracks all of the costs of operating the vehicle for the year (gas, oil, repairs, tires, insurance, registration fees, and lease payments) and multiply those by the percentage of miles driven.
(Note: you cannot count the miles driven while commuting between your home and your regular place of business. These costs are considered personal commuting expenses.)
Telephone and Internet
Telephone and internet services are an integral part of your business and can be a deductible business expense. If you use your cell phone and internet connection for both personal and business reasons, you can only deduct the percentage used for business. Keep an itemized bill or other detailed records to prove the amount of business use in case your return is audited.
Increasing your business expertise through education? These costs can be fully deductible while adding value to your business. In order to decide if your class or workshop qualifies, the IRS will look at whether the expense maintains or improves skills that are required in your current business. Some valid business education expenses are: classes to improve skills in your field, seminars and webinars, subscriptions to trade publications, books, workshops and transportation expenses to and from class.
If you use a home office for your business, you may be able to deduct a portion of your housing expenses against business income. There are two ways to deduct home office expenses.
Simplified method. You can deduct $5 per square foot of your home that is used for business, up to a maximum of 300 square feet.
Standard method. Track all actual expenses of maintaining your home, such as mortgage interest or rent, utilities, real estate taxes, housekeeping and landscaping service, homeowners association fees, and repairs. Multiply these expenses by the percentage of your home devoted to business use.
To qualify for the home office deduction, you need to measure up in two areas:
Regular and exclusive use. To pass the regularly and exclusively requirement, you must regularly use your home office exclusively for conducting business activities. You can't have your desk double as your kitchen table. You don’t need to dedicate an entire room to your business, but your work area should have clearly identifiable boundaries. In case the IRS selects your return for audit you may want to keep photos of your home office work space with your tax documentation.
Principal Place of Business. Your home office must be your principal place of business where you spend the most time conducting business activities.
If you take out a loan or use a credit card to cover business expenses, you can deduct the interest paid to your lender or credit card company as long as you meet the following requirements:
You are legally liable for the debt.
You and the lender have a true debtor/creditor relationship.
Both you and the lender intend for the debt to be repaid and not considered a gift.
Keep in mind, you need to divide the interest between the business and personal parts of the loan if a loan is part business and part personal.
For a trip to qualify as business travel, it has to meet certain criteria. For example, it has to be necessary, ordinary and away from your tax home. Your tax home is considered the entire city or area in which you conduct business, regardless of where you live. You need to travel away from your tax home for longer than a normal day’s work, requiring you to sleep or rest en route.
Deductible, IRS approved business travel expenses include:
- Travel to and from your destination by plane, train, bus, or car
- Using your car while at a business location
- Parking and toll fees
- The cost of taxis and other methods of transportation used on a business trip
- Meals and lodging
- Dry cleaning while on a business trip
- Business calls
- Shipping of baggage and sample or display materials to your destination
- Other similar ordinary and necessary expenses related to your business travel
Remember to keep records that include the amount of each expense, as well as dates of return/departure, details of the trip, a mileage log if you drove your own vehicle, and the business reason for the trip.
You can deduct the premiums you pay for various types of business insurance. Including, but not limited to: property coverage, liability, group health (dental and vision), workers compensation coverage, auto and life.
The above-mentioned deductions can be claimed on Schedule C or Form 1065, but there are a few other tax breaks small business owners commonly claim on their individual returns. Like charitable contributions, child and dependent care expenses, retirement contributions, and health care expenses. You can find a State-by-State guide to taxes online for taxes in Minnesota.
Make sure you track all of the expenses related to running your business and review them with your accountant at year-end to ensure you’re taking advantage of every legitimate deduction. These are just some of the write-offs that can save your business money when tax time comes. There are many more. Tax deductions are an essential way to minimize the amount of tax you have to pay, and good record keeping will ensure you get the best returns possible.
*Each person should consult his or her own attorney, business adviser, or tax adviser with respect to matters referenced in this post. Flagship Bank assumes no liability for actions taken in reliance upon information contained herein.