When you start your own business, there are countless details to juggle. Everything from the design of your product to how you’ll connect with your audience feels like a monumental decision. Near the bottom of the list of exciting new things on your mind — perhaps even after which coffee pot you’ll have in the office — is taxes.
For many business owners, taxes are a burden to be brushed aside until the last minute. The recent corporate and personal tax return deadline was undoubtedly accompanied by plenty of anger, stress, and headaches on the part of business owners and tax preparers alike.
It might be too late to fix this year’s tax woes, but it’s never too early to start planning for next year.
How to Put Uncle Sam to Work
Business owners often neglect tax write-offs because they seem “nice to have” rather than a necessity, but it’s critical to take advantage of these opportunities. Tax write-offs exist to promote business activity, and they can help you save money to reinvest in your company.
While they might seem relatively minor in the grand scheme, these 10 tax write-offs could make a big difference for your company.
Every time you travel for business, keep detailed records of how much money you spend. Expenses for flights and hotels are often fully tax-deductible, but you can also deduct cab fares, parking and toll fees, car rental expenses, dinner bills, and even the dry-cleaning that keeps you from showing up to meetings looking like you just pulled your shirt out of a suitcase (even if you did).
#2. Insurance Premiums
Small business owners are intimately familiar with the hefty yearly expense associated with various forms of insurance. You can almost always deduct insurance that’s essential in your industry, but things become a bit more complex with health insurance premiums.
You likely can claim your premiums as a deduction if you have an individual health plan, if you pay your premiums out of pocket, and if you’re a sole proprietor, a partner, an LLC, or an S corporation shareholder. Talk through these details with a tax professional, but this guide can help you better understand healthcare deductions in the meantime.
#3. Legal and Professional Fees
The IRS has put together a full guide on the subject, but you can generally deduct fees associated with hiring a lawyer, accountant, or even a tax professional. Just make sure the services were business-related. The lone exception is any legal fees you paid to acquire business assets.
#4. Auto Expenses
The gas you use driving to and from work doesn’t count, but fuel or maintenance costs directly associated with business-related activities can get you a tax break. The IRS has standard mileage rate deductions, but you can also save receipts to track the actual expenses you incur throughout the year. Crunch the numbers, and go with whichever option saves you more.
Good advertising can play a pivotal role in the success of a small business — particularly if you’re working on a local scale. The cost of promoting your business can be significant, but thankfully you can deduct almost all forms of advertising and promotion. Beyond print advertisements in local publications, this covers costs associated with maintaining a website, producing branded items, and sponsoring community events.
Do you commonly take clients out to business lunches and dinners? Start saving those receipts. You can often deduct up to 50 percent of food and beverage expenses, including taxes and tips. Keep track of whom you met with and what business you conducted during each meal by jotting down notes on the back of your receipts. It takes only a minute, but it will make things much easier come tax season.
#7. Employee Expenses
This umbrella term covers a broad range of costs concerning employee payment. It includes more obvious things such as employee salaries — provided the pay is “reasonable” and “for services performed” — but it also covers awards, bonuses, education expenses, and employer contributions to retirement plans. Note that your own salary is not usually covered by this deduction.
#8. Bad Debts
When a business deal goes sour, there might be a silver lining for your company: Any unpaid debt associated with revenue from goods your business sold is tax-deductible. Unfortunately, you can’t deduct delinquent bills for services you provided. There are some tricky details to this write-off, so talk through the finer details with your tax professional.
#9. Startup Costs
Starting a business is difficult and often complicated, so you should take every break you can get. You can deduct up to $5,000 in startup costs during your first year of business, provided your startup costs don’t exceed $50,000.
Entrepreneurs can amortize these costs over 15 years, taking an identical deduction annually. If your startup costs are $30,000, for example, you could choose to deduct $2,000 annually for 15 years. If you think it will take time for your company to start turning a profit, it might make sense to spread your deductions over as many years as possible.
#10. State Taxes
Don’t forget about taxes: Federal incomes taxes don’t qualify, but state and local taxes are deductible as long as you itemize. You can deduct 50 percent of your self-employment tax, and any real estate taxes you pay for your business are deductible. Remember to include any Social Security, Medicare, and federal unemployment taxes you pay.
If you missed any of these crucial tax write-offs this year, the first thing you might want to do is rethink using the same tax accountant. Once you’ve sorted that out, spend time planning for next year to maximize your business deductions.
Careful preparation and organization can make the difference between a hefty tax bill and a helpful refund from Uncle Sam. Put in the hard work to get your finances in order now, and you might end up with some extra money to reinvest in your business down the road.
Are you an expert at capitalizing on every last tax write-off possible? Have you had any particularly bad experiences during tax season? Tell us about it in the comments.