Ten Great Small Business Tax Deductions You May Not Be Using
When you’re running a small business, every day might be the difference between opening tomorrow and going bankrupt.
At Hathaway & Kunz, our Wyoming business attorneys want small businesses to succeed; they are, after all, the backbone to the U.S. economy. That’s why we (with the help of Nolo.com) have compiled a list of the top ten tax deductions for your small business.
Top 10 tax deductions for your small business
- Auto. If you use your car for business, or your business owns a vehicle, you can deduct some of the costs for maintaining it. There are two methods for claiming expenses on your car:
- Actual expense method: Keep track of and deduct all of your business-related expenses. If you use a newer car for business, the actual expense method provides a larger deduction, and you can also deduct depreciation on the vehicle.
- Standard mileage rate method: Deduct a certain amount for each mile driven, plus, business related tolls and parking fee. To use the standard mileage rate method, you must use the method for the first year you used the car for business activity. Also, you cannot use the standard mileage rate if you have claimed accelerate depreciation or taken a Section 179 deduction for the vehicle in prior years.
- Expenses of Starting a Business. When you’re running a business, things like advertising, utilities, office supplies, and repairs can be deducted, but only after you are open for business. You may also deduct $5,000 the first year in business as capital expenses; any remainder must be deducted in equal amounts over the next 15 years.
- Legal and Professional Fees. Resources used for your business are also deductible. For instance, books that help you do without legal and tax professionals. Also, fees from lawyers, CPAs, or consultants can be deducted, but if the work relates to the future, it must be deducted over the life of the benefit.
- Bad Debts. Deduction of bad debts is fairly situational. Here are some pointers:
- If your business sells goods, you can deduct the cost of the goods you sell but aren’t paid for.
- If your business deals in services, no deduction is allowed.
- Business Entertainment. If you spend money on entertaining present or prospective customers, you may deduct 50% of the cost if business is discussed immediately before, during or after the entertainment.
- Travel. When you travel for business, you may deduct plane fare, costs of operating your car, taxis, lodging, meals, shipping business materials, cleaning clothes, phone call, faxes, and tips. However, even if you take your family, you can only deduct your own expenses.
- Interest. If you use a credit card or a personal loan to finance business purchases, the interest and carrying charges are deductible. Keep good records to show the money is being used for your business.
- Charitable Contributions. If your business is a partnership, a limited liability company, or an S corporation, you can claim business donations on your individual tax return. If you own a C corporation, your business can deduct the charitable contributions.
- Moving Expenses. If you must relocate due to your job, then you may be able to deduct certain moving costs (on your 1040 tax return). The new workplace must be at least 50 miles farther from your old home than your old workplace was and it must be demonstrated that you moved for work.
- Advertising and Promotion. If your business pays for business cards, ads, and so on, you may be able to make some of that money back. Advertising and promotional costs are tax deductible.
