Filing Your Small Business Income Taxes? Here Are Some Deductions You Don’t Want to Miss

Preparing income taxes with laptop, calculator and misc on desk

It’s that time of year again! April 15th is right around the corner, and many of us are scrambling to get our income taxes done before the filing deadline comes around. Of course, you can always file an extension, but you still need to pay any taxes you owe by April 15th. So, the time to get your financial ducks in a row is now.

If you’re an experienced business owner, you probably have a tax accountant who prepares and files your income taxes and maintains your records throughout the year. But if you’re a small start- up or an emerging entrepreneur, you may be facing tax time with little preparation and not a lot of support. This is especially true if you’re a minority or woman business owner, since you may have fewer mentors and a smaller network to rely on for advice.

Fortunately, today’s income tax software for small businesses is both affordable and easy to use. (According to Business News Daily, Turbotax is still the best around, but Taxslayer is gaining ground, especially with freelancers and self-employed entrepreneurs.) But if you don’t have a lot of experience filing small business taxes, there are some deductions that you’re likely to miss. Here’s the rundown on just a few.

Bad Debts

It’s not unusual for fledgling entrepreneurs to extend credit, hoping to grow their business and increase sales. Unfortunately, it’s also not unusual for customers to take advantage of start-ups and renege on their debts. To compensate for this, the IRS allows you to deduct these kinds of losses from your business income as long as you can prove they were loans and not gifts. Some specific examples of deductible bad debts include:

  • Loans to clients, suppliers, distributors or employees
  • Credit sales to customers
  • Business loan guarantees

Business Use of Your Home

If your home is your principal place of business, you can typically deduct all of the business expenses associated with the use of your home (not exceeding the  gross income from the business.) However, to qualify for this deduction, you must be able to demonstrate that you use a specific area of the home exclusively to conduct business. It’s not enough to have a laptop and a printer set up on the kitchen table where you also eat your meals.

Be aware, too, that you can deduct only that portion of your household expenses that are used for the business space.(For example, a portion of the utility bill). If you’d rather not bother substantiating these expenses, you can multiply $5 by the square footage of your office space to a maximum of 300 square feet.(or $1,500.)

Credit Card Interest

If you have a credit card that you use exclusively for business expenses, you can deduct the interest you paid throughout the year at tax time. Things can get tricky quickly if you use a personal credit card for business expenses and then try to separate out the interest you paid on various purchases later on. So if you don’t already have a dedicated business credit card, it’s a good idea to open one now.

Business Travel

If you travel regularly for business, you may be able to deduct  travel expenses from your income at year’s end. To qualify as deductions, the expenses must be associated with travel away from what the IRS calls your “tax home” — that is, the city where your principal place of business is located. (So if you live in Connecticut and work in New York City, New York City is your tax home.) Additionally, you must be away from home longer than the course of one business day for your travel expenses to qualify.

Deductible travel expenses typically include:

  • Meals and lodging
  • Airfare or other public transit such as a train or bus
  • Taxi or ridesharing costs
  • Rental car
  • The cost of using your own car (either actual expenses or a standard mileage rate determined by the IRS)
  • Baggage fees and shipping costs
  • Drycleaning and laundry
  • Tips
  • Business calls made while traveling
  • Any other reasonable expenses incurred while away from home (for example, faxing documents, equipment rentals, FedEx costs)

All expenses must be reasonable. The IRS will not allow deductions that it deems to be in excess of usual and ordinary travel costs. (No 4-star hotels or Michelin-star restaurants, please!)

Start-up Costs

If you recently started a business, you can deduct expenses that you incurred before your business opened its doors. These generally include the cost of investigating a specific business and the actual capital expenditures involved in setting the business up. According to the Small Business Administration, these deductible expenses include:

  • Market surveys, product analysis, visiting potential business locations, investigating the labor supply
  • Employee training
  • Consultant fees
  • Advertising costs
  • Travel associated with finding suppliers, distributors and/or customers

They do not include the cost of professional licenses or tangible business assets such as real estate, vehicles, or business equipment. These are handled differently by the IRS.

In most cases, you can deduct up to $5,000 the first year you’re in business. Or, if your start-up costs are over $5,000 but less that $50,000 (at which point different rules apply) you can amortize your startup costs over the next 15 years. So if your start-up costs were $30,000, you can opt to deduct $2,000 on your business income taxes for the next 15 years.

Cleaning and Maintenance

You are probably aware that you can deduct items like rent on your business premises or the mortgage interest on your business property from your federal income taxes. But did you know you are also entitiled to a deduction for a cleaning service or supplies that you purchase to clean the premises yourself? You can also deduct for routine maintenance, such as a plumber, handyman or other tradesperson who makes necessary repairs, as well as maintenance such as carpet cleaning and exterior paint.

Of course, there are dozens more allowable expenses that you can deduct from your federal income taxes this year. But these are a few that many new small business owners tend to miss. Check out the IRS Small Business and Self-Employed Tax Center to learn more about what you can and cannot deduct in 2019.  

About The Carmoon Group

The Carmoon Group, Ltd. is an independent insurance broker headquartered in Hicksville, New York. Through our large nationwide network of affiliates, we offer a wide array of risk management and insurance options to businesses all across the United States. We are also a minority-owned firm with over 25 years experience in helping MWBEs succeed. So why not give us a call today to discuss your needs? Or if you don’t have time to chat right now, reach out online and we’ll get back to you at a convenient time.

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