Founded by a former IRS Agent

Founded by a former IRS Agent

10 Tax Deductions for Your Small Business

June 25, 2015

10 Tax Deductions for Your Small Business

Tax deductions. They can dramatically effect how much your business is taxed in the long run, but the catch is that they must be legitimate expenses. Adding deductions to your taxes really boils down to knowing exactly what does — and doesn’t — count as a deduction. Don’t forget these 10 deductions the next time you sit down to sort through your taxes!

1. Startup Costs

Keep in mind that your expenses used for getting your business up and running are defined as capital expenses. In your first year of business, you’re eligible to trim up to $5,000 in deductions. If you spend more than $5,000 on getting your business off the ground in your first year, the excess is then deducted over the following 15 years in equal parts. For example, if you spent another $5,000 in startup costs in addition to the initial $5,000, you can then deduct roughly $333 per year for the next 15 years.

2. Automobile Expenses

There’s a good chance that you use your car to participate in your business dealings, or your business might even have a vehicle of its own. Many of the costs associated with using a vehicle for business are deductible.

You essentially have two choices: you can either use the actual expense method or the standard mileage rate method. The actual expense method requires that you track and report all of your auto expenses relating to business. The standard mileage rate method requires that you track your business-related mileage on your vehicle, as well as any parking or toll fees.

Keep in mind that you can only deduct auto expenses that strictly relate to business. You won’t be able to deduct those Sunday brunch trips with friends or vacation mileage.

3. Professional, Legal, and Book Fees

If you use business books in lieu of hiring tax/legal professionals, their expenses are deductible. Likewise, fees associated with tax professionals, consultants, and lawyers can generally be deducted in the same year that they are accrued.

4. Entertaining Clients

If you’ve ever taken a client or potential customer out to eat to discuss business, keep in mind that half of the tab is deductible. The only stipulation is that the occasion must be related to business in some way. To ensure that your deductions are counted as being legitimate, jot down notes pertaining to the matters discussed on receipts. For example, you might write, “Discussed new web design project with John Doe.”

5. Customer Debt

In certain cases, you can deduct lost profits on transactions where customers or clients failed to pay up. However, this only applies to goods sold under your business. Services that clients fail to pay for will almost never be deductible.

6. Travel Expenses

Any expenses associated with business travel are generally deductible. For example, if you took a flight to a business seminar, you can completely deduct the cost of air fare. Even if you plan to combine pleasure with the business matter at hand, expenses are still deductible. However, the main purpose of the trip must be business-related.

7. New Supplies and Equipment

In some cases, businesses are able to completely write off new equipment or supplies during the year they’re acquired. In other cases, their cost can be deducted over the following multiple years.

8. Interest Fees

Any interest accrued on credit used for your business can be deducted on your taxes. The interest accrued on personal/business loans used for explicitly business-related reasons can also be shaved off once tax time arrives.

9. Promotion and Advertising

Regular advertising costs are generally deductible according to tax law, and even promotional costs used in an effort to develop your business can be forgiven. For example, if your business sponsored a tee-ball team, the costs associated with it would be deductible.

10. Expenses for Moving

You can shave off any expenses associated with moving, but the primary reason for the location change must be business-related. Furthermore, your new business location has to be more than 50 miles away from your old residence in comparison to your old business location. Speak with a tax professional to find out if your moving expenses are qualified to be deducted.

It’s time to schedule an appointment with Pogosian Nazaryan & Company.