In our recent blog, “The 3 Biggest Tax Mistakes for Small Business Owners,” we noted that expenses are a normal and necessary part of running a business, but making sense of it all can be extremely tricky. Missing out on deductions you are entitled to as a small business owner is a common and costly mistake. Potentially worse, taking deductions for things you should not (i.e. personal expenses) can trigger an audit! Thankfully, we are here to help. If you want to learn how to accurately lower your taxable income, read on to understand what is considered a business expense.
Business Meals
As a small business owner, you can deduct 50% of any meals related to conducting business, as long as you keep detailed records to document the expense. For every business meal, be sure to save your receipt, and log the date, location, and total cost with a tip, as well as who you dined with and why.
Business Travel
The Internal Revenue Service (IRS) notes that, in addition to the aforementioned meals, most business travel expenses are tax-deductible. This includes airfare, the cost of train or bus tickets, taxis and rental cars, mileage, tolls and parking fees when using your own vehicle, hotels, tips, dry cleaning, and more.
Business Vehicles
If you use your car solely for business purposes, you can write off the full cost of operating and maintaining it on your tax return. If you also use your car for personal reasons, you can only deduct the work-related portion. You can also claim mileage when conducting business, utilizing either the standard mileage rates or actual miles driven.
Home Office
If you work out of your home, the IRS offers a simplified home office deduction option, which includes a standard deduction of $5 per square foot of space used exclusively for business, up to 300 square feet. A certified tax accountant can help you decide whether the standard or regular home office deduction is best for your situation.
Office Supplies
Necessary office supplies like printers, ink, paper, pencils, pens, computers, business software, and work-related postage and shipping costs can all be claimed on your tax return, as long as you save your receipts. To read more about “The Importance of Keeping Records as a Small Business,” click here.
If you meet the requirements, other possible deductions for small business owners include startup expenses, advertising costs, insurance, business loan interest and bank fees, salaries and benefits (for small business owners with employees), phone and internet, charitable donations, child and dependent care, IRA contributions, educational expenses, depreciation of business investments, and more. Each can help lower your taxable income, but like we said earlier, making sense of it all can be extremely tricky. That is why we always recommend consulting a tax professional. If you reside in the greater Philadelphia area and need assistance, contact Drake Tax Services today!
Drake Tax Services has been serving the Greater Philadelphia area since 1997. Its founder, Anthony F. Drake, is a professional accountant and IRS approved tax preparer who specializes in local, state and federal tax returns for both individuals and small businesses.
