Tax season is upon us. Small businesses can take a big hit, so don’t forget these deductions to help filing be a little less painful.
When claiming deductions, the Internal Revenue Service (IRS) says expenses must be directly related to your business.
1. Track Car Expenses
If you use your personal vehicle to travel to and from work, the standard mileage rate as of January 2021 is 60 cents per mile. Keep a record of your business trips, distance, and purpose. You can also deduct gas, oil, tires, and other items if it is directly related to work travel.
2. Travel Expenses
When tracking travel expenses, you have to start with the location you do the majority of your business from, your regular place of business. You are allowed to deduct travel expenses by plane, train, car, or bus. This includes first-class plane travel. Taxi fares can also be deducted, but talk to a professional tax consultant regarding ridesharing fares such as Uber and Lyft. Lodging and meals can also be deducted if an overnight stay is required for work and meals are not overly expensive.
3. Depreciation of Assets
You cannot claim the full price of items or equipment you purchase for your business. Instead, you have to have used the item for more than a year and keep a record of its depreciation in order to claim it as a deduction on taxes.
4. Small Business Loans and Credit Card Rollovers
If you have borrowed money from the bank for a business loan or if you have a rollover balance on your business credit card, you can deduct the interest. This does not include loans from friends or family members or loans for personal use items.
5. Rent and Insurance Expenses
Rent on a building, factory, or office can be deducted. Deducting expenses for a home office has specific guidelines so you may want to check with an advisor. Insurance for your business can be deducted such as property, general liability, health, and workers’ compensation.
6. Fees for legal, accounting, and marketing
What you pay for business-related services is deductible. Any fees paid to your accountant and lawyer for their work with business-related matters are deductible. Marketing and advertising for your company is also a business expense that is a write-off. This includes website fees and social media marketing.
7. Wages, Salary, and Labor Contracts
Any payments made to employees for work performed for the company is considered a deduction. Also, payments made to freelancers or contractors are included.
8. Childcare
Depending on your income, you can claim a percentage of childcare expenses for any dependents under the age of 13. You can also write off care for a disabled person such as a spouse or parent who is a dependent in your care. For 2021, it’s up to 50% of $8,000 of expenses for one dependent or $16,000 for two or more.
9. Charities
If you intend to write off charitable donations, there is a limit. The IRS has more details on this, but it is usually a percentage of your gross income. The donations can be in the form of cash or property.
10. Retirement
Any amount you put into the retirement accounts of your employees can be written off. You can also write off the money you put into your account. The IRS has specific rules on this so make sure to do your research or consult a tax advisor.
To ensure you take advantage of all deductions available to your business, seek a professional accountant or tax advisor. While an app or other tax program may be appealing, the money spent hiring a professional will be well worth it to make sure your taxes are filed correctly and to your greatest benefit.
