One of the quickest ways to cut down on business expenses is to take advantage of tax write-offs for small and medium businesses. If you know about these deductions and the nformation you need to keep track of them, you can save some serious money every year.
These six types of write-offs are essential when building your records and preparing your taxes.
1. Education, Publications and Subscriptions
Furthering your education, so long as the classes you take are directly related to your work, can save you some money on your taxes. If the education you receive maintains or improves skills you need in your profession, you can deduct its cost. However, if the class was needed to meet minimum education requirements or is part of a program that would qualify you for work in another field, you won’t be able to write it off.
Similarly, work-related publications and subscription costs can also be written off. If you pay for more than one year at a time, you will have to prorate the price for each year when you deduct the expense.
2. The Home Office
Any dedicated room you use for work can be written off on your taxes. The deduction’s value will be based on the size of the space and for how many months of the year you’ve used it for work. If it’s a home office, the value will be based on the percentage of area your office takes up in hour house.
Calculating the exact value of the write-off will take some work. The IRS Publication 587 lays out the rules of applying for this deduction. You can either use a simplified method or a more advanced way that allows you to include other factors — like home value depreciation and property taxes — when figuring for the write-off’s value.
Some caveats apply, however. The office needs to be a dedicated workspace, with job-related use being “regular and exclusive.” If you use it for anything else — sleeping, eating, entertaining — you may not be able to claim the space on your taxes.
While the deduction itself can be claimed without any evidence, the IRS may challenge it. In that case, you’d need to provide proof that the space you’re claiming exists and is only used as an office.
3. Travel Expenses
If you have to travel for work, you can write off some of your trip’s cost — so long as it wasn’t lavish or extravagant or for personal purposes.
For the purpose of the deduction, travel is any trip that requires you to be away from your home tax area for a period that’s longer than your ordinary workday. It has to be long enough that you need to get sleep at some point.
A wide variety of travel-related costs can be deducted. For example, if you used a business vehicle, you can write off the total amount of money you spent to get to your location. You can also calculate your deduction using the standard mileage rate. Lodging, meals, tips, dry cleaning and any other ordinary travel expense can also be written off.
As with any other deduction, however, remember that the IRS may want proof of your spending. Be sure to hang on to your receipts after you get home.
4. Fleet Vehicle Deductions
If your business owns and operates a fleet of vehicles, you can qualify for another set of potential write-offs. Under section 179 of the tax code, companies can deduct the cost of new cars that can only be used for business. For example, you may have a van with some extensive shelving for work purposes, like holding materials or equipment. If you bought that van this year, it would qualify as a work vehicle. However, the shelving must be part of a fully-enclosed cargo area, and there must be no seating at all behind the driver’s seat.
You can also deduct other related business expenses. In the same way that you write off fuel for individual travel, you may be able to deduct costs based on a standard mileage rate method. You can also figure the total amount of money you’ve spent on a vehicle and deduct some specific expenses, such as:
- Vehicle depreciation
- Licenses, insurance and registration fees
- Lease payments
- Garage rent
- Gas, tires and oil
- Tolls and parking fees
Keeping track of these expenses throughout the year may save you some extra money, but the standard mileage rate will probably also save labor time if you file your taxes yourself. Keep in mind, however, that some write-offs are mutually exclusive. For example, you can’t deduct mileage on a car you claimed as a business expense under Section 179.
If you spend money promoting your business, you can often deduct some of those costs on your taxes. Advertising is a broad category of expenses and can cover almost any kind of marketing — from direct to print to events that promote your brand.
Ads on vehicles can also be deducted, but just the cost of putting it on. You can’t write off driving the car around as part of your overall ad spend.
6. General Business Expenses
A wide range of business expenses is tax-deductible. For example, start-up costs, assets and improvements can all be written off. Other costs — including employee pay, insurance and rent — can also be deducted as business expenses.
You can even deduct your taxes on your taxes.
For a full list of business expenses you can deduct — along with extra information on how to do so and exceptions that may apply — consult IRS Publication 535.
The Best Tax Deductions for a Small Business
With the right deductions, you can save your company a lot of money on taxes. These deductions are some of the biggest ones that business owners miss. Keeping records of the equipment you buy, the money you spend on travel and the space you use for a home office will provide you with valuable write-offs during tax season.
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