What are the best small business tax deductions?
I get asked this questions almost everyday by a small business owner that want’s to ensure that they pay their fair share and not a penny more. Just the other day, I met with a business owner that was almost afraid to claim some of their bonafide business expenses because they didn’t want to do anything to cause an audit.
The bottom line is that you’re entitled to small business tax deductions that are genuine expenses tied to your small business. There is no reason to be overly conservative and miss out on any small business tax deductions that you’re entitled to.
Our mantra around here is that Small Business Owners Deserve to pay their fair share, and not a penny more.
This means that business owners, entrepreneurs and other 1099 income earners not only need to implement a sound S-Corp strategy if it makes sense, but they need to ensure that they’re aware of the small business tax deductions that make the biggest impact.
Remember, great accounting and bookkeeping is the foundation of every small business, and I consider it almost impossible to pro-actively embrace all the small business tax deductions that you’re entitled to. That’s why here at Nuance Financial Tax & Accounting, your primary service starts with us taking care of your bookkeeping for you.
That being said, it’s important to keep the receipts, bank statements, credit card statements and other substantiating documentation. When you have a great bookkeeping system, you can just file those receipts away in a box so that if you got audited, we’d be able to substantiate the write offs that you’ve taken.
Small business tax deductions – 5 basics
1 – expenses related to traveling.
It’s mind boggling the number of tax returns we come across that have 0 travel expenses. This is unfortunate, because unlike the 50% limitation for meals and entertainment, bona-fide travel expenses are 100% deductible.
It’s helpful to scrutinize how much travel in the year that would have involved a client meeting, vendors, a training session with a mentor, a tour of a competitors store facility or operations, your annual board of directors meeting, shareholder meeting o rmember meeting. Another area of travel expense could be going on a conference or retreat with your business partner or a whole host of other bona-fide travel situations.
The main thing is that the travel is actually for your business, but that doesn’t mean that you can’t start morphing your business to participate and engage in regions or areas that you’d like to be traveling to and from. Investing in real estate is a great way to start a small business in a region that you’d like to make a part of your life while opening up a tremendous small business tax write off as well.
2 – Automobile Deductions.
This is totally different than travel, this is the deduction your take because of the use of your car or truck for business. Two options are available for this small business write off, either mileage or actual. When you are driving around in pursuit of profit, you’ll be able to take .54 cents per mile in 2016, which was reduced from the .575 cents per mile in 2015. You need to keep track of the miles you use for business, and there are few better tools than an app called MILEiQ. Don’t be hesitant to take full advantage of any bonafide miles concerning this small business write off. I’d rather see a client claim the bona-fide miles and have to substantiate in an audit, than not take the bona-fide miles and pay the taxes.
For most entrepreneurs that are driving regular consumer vehicles, the mileage option ends up being the best small business write off nearly every time, but actual can have it’s advantages.
If you take actual, you’ll be stuck for the life of the vehicle and you’ll lose that flexibility. You’ll need to keep great records for all the expenses that you’ve had on the vehicle. These would include:
- Oil and gas
- Maintenance, repairs and upkeep
- Depreciation of the original vehicle and the improvements you’ve made
- Repair tools for the car
- Fees associated with registration
- Car washes
- Payments for leases
- Towing charges
- Auto club dues
If you’re not sure if you’d rather do mileage or actual, it’s best to start with mileage so you have the flexibility later on. Remember, leases have their own rules (and we don’t recommend a lease EVER because it’s such a poor financial decision)
Actual has dozens of factors that you have to keep track of, such as the size of the vehicle, when you bought it, what portion is used for business, what and the SIZE is particularly important.
Large Trucks and Vans. If a small business van or truck is over 6,000 pounds and also has a 6 foot bed or greater, or is an enclosed truck for deliveries, then you will have a opportunity for huge write offs, for the portion that was used for business.
The IRS has tried to ensure that only true business use vehicles are getting the best small business write off advantages – which is understandable. It’s because of this, we usually recommend the mileage rate unless you have heavy duty trucks and vans that are deployed for business.
3 – Dining and entertainment.
How are you utilizing this small business tax deduction? When you are discussing business with your partners, a potential client, vendors, or some sort of partnership or alliance, you should be considering these as meals and entertainment small business deductions. Technically, you’re bills less than $75 don’t require you to keep the receipt, but it’s a much better idea to keep it so that it can be substantiated later on – it also won’t hurt to keep some notes and an agenda somewhere no matter what. You’ve got to remember that the dining and entertainment is only a 50% small business deduction compared to the 100% deduction for food purchased for an event such as a presentation or seminar.
4 & 5 – home office, technology and supplies for your office.
Entrepreneurs and small business owners should be carefully documenting (or using their business bank account and QuickBooks online) when it comes to all the home office and supplies required.
Your laptop, phone, digital readers, routers, printers, and other things that are vital to your operations are bona-fide small business tax deductions.
Also, remember that the home office deduction, in it’s new simplified application, allows you to write off the portion of your home mortgage that’s associated with your business.
These are the most basic small business tax deductions you should be considering as you get your taxes prepared.
Here at Nuance Financial Tax & Accounting, we provide year-long, pro-active bookkeeping, tax planning, payroll and consulting advice so that you can focus on your business. If you like the idea of having a CPA working with you to help you pay your fair share in taxes, and not a penny more, then you should contact Rob Satrom for a no-cost analysis and consultation for your small business or 1099 income.