3 Tips For Tax Deductions For Small Business Owners

Oct 15

Introduction

Small business owners can make some really great deductions. At the same time, there are some things that you might think are deductible when they actually aren't. This article will take a look at some common questions asked by small business owners and help you decide which expenses are truly deductible as a part of running your business.

Write Off Your Home Office

As a small business owner, you may be able to write off your home office on your taxes. To qualify, the space that is being used as an office must be used exclusively and regularly for business purposes. You can calculate your home office expense two ways: simplified method vs actual method. The simplified method is easier to use, but it may not give you the deduction you need. It also has some restrictions that may not apply to your situation. The simplified method allows you to deduct $5 per square foot of your home office space. However, your home office deduction cannot exceed $1,500 (300 square feet x $5).

When calculating this deduction using the actual method, your deduction can exceed $1,500 but hour home office still needs to be used exclusively and regularly for your business. With the actual method, you need to calculate the percent of your home that is used for you office. Let's say for example, your office is 500 square feet and your home is 2,000 square feet. Therefore, you would write off 25% of all of your home expenses as a home office deduction. You can write off things like rent, utilities, insurance, and property taxes.

Many small business owners work from home.

If you work from home, the IRS allows you to write off expenses related to your office.
If you travel for business, the IRS allows you to write off those travel expenses (within reason).
The IRS also allows small business owners to deduct education expenses if they are required or necessary for the production of income.
Small biz owners can even write off advertising expenses and depreciation costs related to their business.

They might have a dedicated room in their house to use as an office, or they might just have a desk in a spare bedroom.

In order to claim your home office as a deduction, the IRS requires that you use the room for business purposes. If you meet this requirement, then you can write off the cost of your office furniture and equipment. This is a great place to start when looking at deductions because it doesn't require any special accounting or knowledge of tax laws—just identifying which items are used for work-related tasks.

You might also be able to write off other expenses associated with running a business out of your house: phone bills, internet service fees and even home supplies like printer toner cartridges or paperclips can all count as legitimate small business deductions.

Work Out Of The House? Deduct Transportation Expenses!

You can also deduct transportation expenses. The IRS allows you to claim the standard mileage rate, which is a fixed amount that calculates your deductible miles based on your business usage. The current mileage rate for 2022 is 62.5 cents per mile—a 4-cent increase from the first 6 months of 2022. If you use your own car for business purposes, the IRS allows you to deduct actual costs or the standard mileage rate (whichever is lower).

Mileage logs are required if you want to claim the mileage deduction rather than use the actual cost deduction method. To calculate the actual cost, you need to know what percent of your vehicle is used for business. Let's say, for example, you use 50% of your vehicle for business. Then you would take 50% of all of your vehicle-related expenses that year and use that as your vehicle write-off for your taxes. Some common expenses are depreciation, gas, repairs, and insurance.

Even if you don't work from home, if you travel for business purposes and claim mileage, the IRS gives you 62.5 cents per mile.

When traveling for business, regardless of using the standard mileage rate or the actual cost method, you can still deduct travel expenses like tolls, parking, public transportation, and hotels. Just remember, everything needs to be necessary and ordinary for your business.

The reason for this is to allow businesses to deduct their operating costs and make up for any wear and tear on their car.

The IRS allows you to deduct the cost of your car's depreciation, maintenance, and fuel. The IRS also allows small business owners to deduct parking fees, tolls, and car insurance premiums paid for their business vehicles. This is a great way for small businesses to save money on taxes. The IRS does not allow you to deduct personal expenses like your car loan payments or registration fees as a business expense.

Be Decisive About What Education You Can Write Off

Above all else, remember that any education expenses you can write off must be related to your business. This means the course you take must help improve your skills or knowledge in some way, whether it’s an online course or a conference in another city.

Education expenses also include tuition, books and supplies, and fees paid to an organization that conducts a convention, seminar, or meeting related to your business.

If you are trying to keep costs down during the start-up phase of your business, it can sometimes be difficult to justify additional expenses like education courses.

However, if there is something that will help make your business run more smoothly or help improve your skills in your field, additional education could be considered a deductible business expense.

Education is a business expense.
Education is an investment in your business.
Education will help you become more efficient and productive.
Education will help you learn new things that can be applied to your business.
Education can improve your skills in the field in which you work, making you better at what you do and helping you attract more clients or customers.

No matter what you do, it's always important to keep accurate records of everything!

Keep track of all expenses (business related) on paper or electronically (preferably both).
If possible keep a record of all of your receipts especially for everything more than $75. I always recommend this: act like you will be audited. It's always best to be prepared. The IRS will look into your business finances and make sure you are doing everything correctly!

Conclusion

As you can see, there are many ways to deduct business expenses as a small business owner. From home office write-offs to mileage deductions to education, it is important that you keep track of all your costs so that they can be deducted at the end of the year. This will help save you money on taxes while still allowing your business to grow!

Zach Pasquariello