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Here are several legitimate deductions small business owners may overlook that can lessen their tax burden.
Interest And Fees
Many business owners use credit cards to make company purchases. Some take out loans to pay for improvements, buy inventory or get new equipment. They can all deduct any interest they pay toward outstanding loans and on credit cards, as well as any late fees they incur. Bank fees are also fully deductible, including overdraft and insufficient funds charges. And, if a company pays credit card processing or convenience fees for payments, these are acceptable business deductions too.
At one point or another, most businesses will try to collect on a debt that is owed to them and fail. It’s just par for the course. The consolation is that bad debt is tax deductible. Bad debts include loans to clients and suppliers, credit sales to customers and business loan guarantees. To claim this deduction, businesses must prove they’ve taken action to collect the debt to no avail. If they’ve used an attorney or third party to try to collect, their fee is also deductible.
Recreation And Fun
Although the days of writing off golf fees and big game tickets for client entertainment are over, business owners can deduct all the costs associated with special events they host for their employees. That means holiday parties, company outings and team-building gatherings are fully deductible. Businesses can also write off any meal they provide employees as part of certain planned social occasions.
Many business owners shy away from home office deductions for fear of raising a red flag for auditors, but I don’t believe they should. There are clear guidelines around deductions business owners can take if they use a home office or workspace, and they’re easy to follow. The space must be used as the primary place of business and exclusively for work – so your setup can’t be your kitchen island. Exactly how much is deductible depends on the size of the space within the home. Based on that, filers can write off a percentage of everything from security systems and utilities to mortgage interest, insurance and depreciation.
There’s an old saying that goes, “You have to spend money to make money.” This certainly holds true when you’re getting a new business off the ground. Thankfully, business owners can deduct up to $5,000 in startup costs and an additional $5,000 in organizational costs right off the bat for expenditures up to $50,000. Those that spend more than $50,000 but less than $55,000 would reduce the first year deduction by the amount spent over $50,000. Businesses that exceed $55,000 would have no deduction the first year but can amortize their expenses over 15 years starting the second year of operation.
Most small business owners know they can deduct insurance premiums they maintain for themselves, their spouses and any children under the age of 27, as long as they are not eligible to be covered under an employer-sponsored plan available to them or their spouse. But what some don’t realize is that owners who qualify for Medicare can deduct what they pay for Medicare Parts B and D, and supplemental insurance.
Education And Training
It’s always a good idea for business owners to invest in education and training to improve their skills and stay competitive. Some fields require periodic training or courses to maintain professional credentials. Any expenses associated with continuing education or training directly related to the business are fully deductible, as are dues paid to professional organizations for membership. Businesses can also deduct the entry fees or costs associated with attending workshops, conferences and tradeshows to expand their knowledge.
Business travel opens up many opportunities for deductions. These include the cost of airline, bus or train tickets, hotel stays and also any costs associated with car rental, taxis or shared rides. Fees for extra baggage or changing travel plans are deductible, as are 50% of any meals during a business trip. On the home front, businesses run from home offices can deduct any miles racked up for travel to client or work sites.
Advertising And Marketing
These days, advertising and marketing go way beyond the boundaries of what they used to be. More and more companies are taking advantage of social media and online outlets to spread the word about their products and services. Businesses can write off any costs associated with marketing. This may include direct mail, email marketing services, website development, promotional materials, online advertising, etc. This could also include the cost of hiring marketing consultants or contractors.
The key to taking advantage of these tax breaks? Keeping excellent records. While you don’t always have to provide receipts for deductions, businesses need records of the expenses in logs or ledgers. Keeping good records can also prevent you from missing out on potential savings and leaving hundreds or even thousands of dollars on the table.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
May 29, 2019 at 07:31AM
Forbes – Entrepreneurs