As a business owner, there are so many things to remember and take care of—especially when you’re just getting started! You wear a million hats—from serving your customers, to marketing, to accounting—and it’s easy to overlook some of the most important tasks.
One of the most critical, yet overlooked, aspects of owning a business is the accounting and taxes.
I totally get it—it’s seriously the least fun thing to do. No one wants to talk about taxes. I have so many people tell me they’d rather get a root canal at the dentist!
But that’s what we’re here for and why we want to share this information with you. As a business owner, you need to know the most common business tax deductions. Many of which are available for brand new businesses to have.
Of course, there are numerous other deductions and some that are very industry-specific; but these are expenses that almost every business owner will see at some point on their business tax return.
So, relax. You’re not getting a root canal, you’re helping your business be successful! Let’s dive into these tax deductions.
1. Depreciation Expense
Depreciation expenses are typically overlooked and often misunderstood by taxpayers. When assets are purchased—usually big ticket items like computers, warehouse equipment or vehicles—they are capitalized instead of expensed.
This means that the asset will depreciate over time and a certain amount will be ‘expensed’ each year. To keep this simple, there is a life assigned to the asset by the IRS depending on what category it falls into. There are also some rules that allow you to fully depreciate the asset in the year you purchase it. This is a great opportunity to manage cash flow and taxable income at the same time.
Prior to 2018, meals and entertainment used to be deductible. Now, that’s off the table and the rules surrounding deducting meals have gotten even more strict. It is critical to separate out the meal portion of the event from the entertainment portion, otherwise the entire expense will be non-deductible.
Meals while traveling for business are deductible. As a general rule, you can deduct 50% of meals expenses as long as the food is not considered lavish or extravagant and the meeting must include business directly before, during, or after the meal is consumed.
Keeping meals and the percentage of deductibility straight can be a task in and of itself. This is one of those areas where I highly recommend having subcategories in your Chart of Accounts.
3. Home Office
First off, I want to remind you that W-2 wage earners are not eligible to deduct a home office expense after 2017. But for business owners, if you use a portion of your home regularly and exclusively for your business, you can claim the home office deduction.
The IRS offers 2 options for utilizing the deduction. One method is to allocate a portion of your utilities, rent or mortgage interest, depreciation, and cleaning fees based on the square footage used for your business.
The second method is to use a simplified calculation at the current rate of $5 per square foot (so if your home office is 100 sq ft, your deduction would equal $500). The maximum deduction using this method is $1,500.
4. Retirement Contributions
This is one that is easily forgotten as time goes on. In the beginning, there isn’t a ton of extra cash lying around to make retirement contributions; but then time goes on, your business starts becoming profitable you might forget to go back to retirement savings.
There are many different options out there to save for retirement and it’s a great way to marry your long term goals with tax deduction opportunities. The Department of Labor rules are different from the IRS rules, so it’s very important to loop your Financial Advisor and Tax Advisor into the same conversation.
5. Advertising and Marketing
You can deduct expenses related to publicity and promotions. Think of this category as promoting your business name, what you do and how you serve customers to the general public.
6. Dues and Subscriptions
I find that many business owners don’t even realize how much their ‘dues’ in a given calendar year add up. Maybe you joined a networking group to bring in more business, perhaps you have a professional organization you belong to, or maybe you still receive a snail-mail printed professional publication for your industry—all of these expenses fall into this category and are eligible for you to deduct.
7. Merchant Services and Bank Fees
I think this is actually one of those expenses that new business owners might forget to account for. The fees can really add up over time. It’s critical to do your due diligence when both searching for a merchant provider, but also ensuring that you are charging enough for your products or services to account for these fees. Nonetheless, any fees incurred are tax deductible.
8. Business Travel
There are many reasons you may need to travel for business purposes. Whether you’re attending a conference, bringing your products to be sold at market, or presenting to a potential client, expenses such as lodging, flights, rental cars, and transportation are eligible deductions. Meals during travel are eligible for the standard 50% deduction.
9. Printing, Postage, and Shipping
Okay—so normally printing doesn’t get lumped together with postage and shipping; but I wanted to talk about all of them. And honestly, so many shipping facilities also offer printing services nowadays.
Printing could include items like business cards, folders, signage, notepads, and such. Postage and shipping could be as simple as purchasing stamps to mail postcards to as big as having an account with UPS or FedEx because you mail multiple boxes each day.
10. Legal and Professional Fees
You are eligible to deduct fees paid to an attorney, CPA, business coach/advisor, consultant, or any other professional who rendered services to your business.
Extra tip: Be certain that you have obtained a Form W-9 for this person or company you have paid as you may be required to issue them a Form 1099-NEC at the end of the year.
The key here is that to be considered a ‘uniform’ per the IRS, the article of clothing must have your logo on it. In some industries, this is very common; for others, it isn’t. Maybe grabbing a few shirts and having a local embroidery shop stitch on your logo would be beneficial. I don’t know about you, but I sure do miss the days of having a school uniform; it just made life easier!
12. Training and Development
Education is a critical component to improving your business, implementing new ideas and keeping up with the changing times. Education/training/development can come in many different forms. Conferences (in-person or virtual), online courses, reference books, business coaches or even a membership to Audible (if spent on business-related material) are eligible deductions.
These trainings apply to all of your employees as well. And don’t forget any certification hours you may need for your profession!
Hopefully, you are feeling a little more empowered and knowledgeable about tax deductions for your business. It’s overwhelming for everybody at first, but with each piece of knowledge you acquire, you’ll be more equipped to handle the ins and outs of your business taxes.
If you want to find out more about how we can help your business, download our services guide here.
*Disclaimer: This article is not meant to be tax advice. This is not an all-inclusive list of business deductions. Different rules may apply to each individual taxpayer’s specific situation. Please consult with your accountant.