Tax time is typically a daunting time of the year for small business owners. With endless documents to gather and the fear of an enormous tax bill looming over your head, the mere mention of small business deductions offers a glimmer of hope. Unfortunately, unless you are an accountant, laws and criteria regarding deductions can be difficult to decipher. While you are probably aware of common business expense deductions like office supplies, mileage and utilities, be sure to explore some of the most commonly overlooked tax deductible expenses for small business owners to minimize your tax bill:
If you are one of the unfortunate small business owners who is still waiting for an employee, client or vendor to repay a business loan or advance, you may be eligible to claim this bad debt as a tax deduction. As long as you have exhausted every method and the debt is not able to be recovered, you will likely qualify for the bad debt deduction.
Credit Card Interest
Many small business owners simply cannot afford to purchase large business related equipment or expensive supplies outright. If you turned to paying for such expenses on a credit card and incurred interest charges, you can deduct 100% of the cost of interest as a business expense.
Going Green Tax Credits
Tax credits are awarded to businesses who operate using environmentally friendly methods. Credits like the Solar Investment Tax Credit or the Business Energy Investment Tax Credit can save small businesses big bucks at tax time. There are numerous technologies that qualify for the credits but operating your business in a building powered by solar panels, for instance, can reduce your small business tax bill.
Being your own boss certainly has its perks- that is, until tax time arrives. Self-employment taxes on your personal income, associated with your small business, can be staggering. Without taxes for Social Security and Medicare being deducted from your salary throughout the year, the self-employment tax rate is approximately 15.3% of your total earned income. Fortunately, one-half of the overall self-employment tax cost is deductible on your personal taxes as a small business owner.
Small business owners, especially those who are new to business ownership, typically turn to professionals for assistance with bookkeeping, payroll and taxes associated with their business finances. You can deduct the cost of such services as business expenses in most cases. It is important to note, however, that the cost of accounting software or fees associated directly with your personal finances are not eligible.
Regardless if you have a brick and mortar location or operate your small business directly from home, you may be able to claim your home office as a business expense. To be eligible for the deduction, the office must be reserved solely for business related work. You will need to calculate the size of your office and divide this number by the overall square footage of your home to determine the percentage of deductible costs such as a fraction of a rent or mortgage payment, electricity costs or insurance premiums.
Entertainment and Dining
Did you wine and dine a prospective client or business associate in the prior year and foot the bill? If so, you may be able to deduct half of the bill. This deduction does not apply to every day lunch with co-workers or employees, but the deductions can certainly add up if you are in an industry where dining and entertaining clients is the norm.
While paper, ink and copiers are typical office supply and equipment deductions for businesses, you can also claim your office furniture as a business expense. As long as the furniture is used exclusively for business purposes and is not out of the normal scope for your industry, it is eligible for a deduction. For example, a chiropractor may deduct expensive ergonomic chairs and salon owners may deduct the cost of massage chairs. For an individual who owns a pet store, though, either one of these purchases would likely be viewed as an unnecessary expense.
Whether promotional or as a way to thank a long standing client for their loyalty, if you purchased a gift for a client throughout the year, you can deduct up to $25 of the total cost as a business expense. This deduction is only applicable for one gift per client.
By exploring some of the less common potential tax deductions and credits that your small business may qualify for, you can drastically reduce the amount of money that you will owe to the IRS.