To be a small business owner is to know how to save money. Small business owners have to be savvy with how they spend because they often have re-invest a lot of their profits back into building up their business, and profits and costs can vary dramatically.
One of the best ways you can save as a small business it to know the full extent of your available tax breaks. Before we delve into 10 of the easiest tax deductions for small businesses, make sure to review all tax-related information with a certified accountant or tax professional, as I am neither.
Home office expenses
If your team is a distributed workforce and you work from a home office, you can deduct your operating expenses. The IRS calls this “Business Use of Your Home.” It works like this:
• Calculate the percentage of your home office from the total square footage of your house. The home office must be a sole dedicated space to your business—a hobby craft room with a desk in the corner technically doesn’t count.
• That home office percentage is also the percentage of all utilities you can deduct, including electricity, gas, and Internet.
• Take your monthly statements or the yearly averages and calculate the percentage.
• Half of all business dinners
If you regularly meet new or potential clients for dinner or drinks, you can deduct 50% of the amount you paid as a business expense. This is the case whether or not you’re traveling or in your home city.
Many people forget to deduct a portion of the new technology they buy because they also use it for personal use. The good news is you can deduct the cost of percentage of the item that you use for business. For instance, if you use your smartphone 50% of the time for business calls, email, or Skype IM chat, you can deduct 50% of the cost for a new one. This also goes for your Internet connection costs as well.
The same goes for computers, monitors, back-up batteries, cameras, and more. However, don’t be generous with the deductions—it’s not worth the IRS audit
Car leases or mileage
When deducting use of your personal vehicle for business, you have a few options. For a purchased car, you can deduct either by mileage or actual expenses, according to TurboTax.
Additionally, if you decide to lease your car instead of buy it, you can deduct the percentage use of lease payment (same as the technology example above). So, if you use your car 15% of the time for appointments, driving to clients, etc. you can deduct 15% of your car lease payments. You have to use the “actual expense” model as mentioned above to deduct lease payments.
If you regularly attend conferences, buy books directly related to your business and industry, or attend on-demand courses, you can deduct the related costs. This is a great way to stay relevant in your industry without worrying too much about the costs.
If you regularly have subscriptions to ongoing services that you use for business, you can deduct them. Some examples include:
• Computer virus protection
• Cloud file backup (for example, Mozy)
• Adobe Creative Cloud
• VPN for client security
• PayPal or credit card transaction fees
There are several other tax breaks for small businesses available. Get familiar with the IRS guidelines for business deductions and take advantage of as much as you legally can.