This year’s April 18th tax filing deadline is fast approaching. Are you confident you’ve claimed all the deductions your small business is owed?
The U.S. Small Business Administration reports that there are 28 million small businesses in the country. These solo workers and small employers account for 54 percent of U.S. sales, 55 percent of all jobs, and 66 percent of all net new jobs since the 1970s. But while the impact of small businesses is impressive, their growth presents additional challenges.
While larger companies can hire accounting firms or in-house tax specialists to handle their bookkeeping and tax filing work, these avenues are often cost-prohibitive for small business owners and entrepreneurs—many of whom choose to file on their own. Given the complexity of the modern tax code (and the sheer number of tax deductions available to small business), this puts these filers at risk of missing deductions that would save them money.
Steve Nicastro of Nerdwallet lays out this risk in no uncertain terms:
“Failing to claim all the small-business tax deductions you’re entitled to is like flushing money down the toilet. Deductions are a legal way to reduce the amount of business income that is subject to tax.”
Which deductions should you be paying attention to? While you’re probably already aware that expenses for home offices, employees, contractors, commercial leases, and utilities can be claimed, you may be missing some of the following opportunities:
1. Startup costs
Did you know that you can claim business expenses on your tax return that you incurred before your business officially launched? As long as certain conditions are met, you may be able to deduct up to $5,000 against your first year, with even more amortized over the next 15 years.
Grasshopper Resources shares an additional tip for claiming this deduction:
“Just remember, a startup expense only counts if it's an expense made during the development and planning phase of your business. Once your business doors are open and business transactions are happening, all expenses would be considered traditional operating expenses.”
2. Personal items converted to business use
While you can’t deduct, say, the computer sitting in your living room at home, you may be able to claim a personal laptop that you eventually convert into a business-only device. Generally, you can claim the item’s fair market value starting from the date of conversion, but it’s wise to keep records proving that you’ve since used the item exclusively for business purposes.
3. Personal cell phone, when used for business
Take a business call on your personal cell phone (or work from home on your personal internet connection)? You may be able to claim a percentage of these household bills, relative to their business use.
Bankrate suggests the following:
“You can deduct the cost of the business calls that you make for business from home. When your bill comes in, circle the business-related calls, total them up and keep a copy. At the end of the year, tally your 12 bills and deduct 100 percent.”
4. Accounting fees
Using the services of an accountant may seem like less of a burden when you recognize that you’ll be able to claim them on your next year’s taxes.
5. Business credit card interest
According to Barbara Weltman, writing for American Express’s Open Forum, “If you financed the purchase of business equipment on your credit card, the interest is a deductible business expense.”
Again, this is an area where it’s in your best interest to keep meticulous records. Tossing a single office supply expense on a personal credit card full of home expenses, and then claiming the full interest payments on the card is unlikely to hold up to IRS scrutiny.
6. Cleaning supplies
Speaking of supplies, while you’ll probably remember to deduct your paper, printer cartridges and mailing supplies, don’t forget the items you use to keep your business’s space neat and tidy. Mops, brooms, trash bags, and cleaning solutions may all be deductible.
7. Fuel tax credit
No, you can’t claim the gas you use driving to and from your office. If your company employs speciality machinery, however, you may be eligible for a fuel tax credit. From AccountingWeb:
“Fuel that a business uses for off-highway equipment or machinery is entitled to a fuel tax credit. For example, if a landscaping company purchases fuel to power its lawnmowers or other equipment; they are entitled to a credit.”
8. Trade show expenses
Any business that’s participated in a trade show knows that these events aren’t cheap. Fortunately, most the expenses associated with them are deductible. Keep careful records of everything you spend on travel, tickets, booth supplies (including expenses such as electricity, lighting and carpet rental), and shipping.
9. Party expenses
While many food and drink expenses—business lunches out, for instance—can only be claimed for 50 percent of their value, you may be able to deduct 100 percent of the costs associated with throwing a party that benefits employees and their families.
Be warned, these deductions can get complicated. If the party in question includes customers, vendors, or even your friends, it may be subject to the same 50 percent “Meals & Entertainment” limitations as business lunches out.
Either speak with an accountant about claiming this deduction, or be prepared to do a lot of reading up on the specifics.
10. Employee gifts
Finally, if at that party—or at any other time of the year—you gave out non-cash employee gifts, at least part of your expenses may be deductible. There are two conditions that exist for claiming this deduction in the U.S.:
- You may only deduct $25 in non-cash gifts to each employee
- The maximum deduction amount for non-cash achievement or service awards given to any one employee is $1,600
These expenses represent just a fraction of a small business’s possible deductions. Speaking with a knowledgeable accountant or tax planner is the best way to ensure you aren’t claiming deductions inappropriately and that you’re getting all of the financial benefits you’re entitled to under U.S. tax law.
Sujan Patel is a leading expert in digital marketing. He is a hard working and high energy individual fueled by his passion to help people and solve problems. He is the co-founder of Web Profits, a growth marketing agency, and a partner in a handful of software companies including Mailshake, Narrow.io, Quuu, and Linktexting.com. Between his consulting practice and his software companies, Sujan’s goal is to help entrepreneurs and marketers scale their businesses.