Many small business owners miss out on valuable tax deductions that could reduce their taxable income. G. Deffenbaugh with Colorado Trusts & Taxes has provided us some commonly overlooked deductions you might have when filing your taxes as a small business owner.
1. Charitable Contributions
Businesses can make charitable contributions directly. For a small business taxed as a pass-through entity, the owner will claim the charitable contribution as an itemized deduction on Schedule A of Form 1040.
Another approach is for a small business owner to make charitable contributions to a donor advised fund (DAF). A DAF allows you to contribute to a dedicated account for charitable purposes, receive an itemized tax deduction on Schedule A of Form 1040, and recommend grants to charities over time. This strategy can benefit small business owners looking to maximize itemized deductions in one year while planning their philanthropic efforts over multiple years.
2. Home Office Deduction
You may qualify for a home office deduction if you work from home and have a dedicated workspace used exclusively for business purposes. You can either use the actual method or the simplified method. The actual expense method includes a portion of rent, mortgage interest, insurance, utilities, repairs, maintenance, and depreciation. The simplified process allows you to deduct $5 per square foot, up to 300 square feet.
3. Business Meals & Travel
If you dine with clients or travel for business, you may be eligible for deductions on these expenses, such as meals and travel expenses. For business meals, you can deduct 50% of expenses if the meal is related to your business. Travel expenses, such as flights, hotels, rental cars, and transportation, are 100% deductible as long as they are business-related.
4. Marketing & Advertising
Promoting your business is essential! The good news is that many advertising and marketing expenses are tax-deductible. These include website development and hosting fees, business cards, and branded merchandise. You can include social media advertising (Facebook, Instagram, LinkedIn, etc.), print advertisements, and marketing materials.
5. Professional Services & Fees
As a small business owner, you may need assistance from various professionals to keep your operations running smoothly. Fees paid to professionals such as accountants and tax preparers, lawyers for business-related legal services, business consultants and coaches, and freelancers and independent contractors providing business services are tax-deductible as long as they offer a business-related service.
6. Education & Training
Investing in your professional development can enhance your business skills and industry knowledge. The IRS allows deductions for several things related to this type of training. You can deduct online and in-person courses, business-related workshops, and seminars related to your field. You can also deduct books, trade publications, and subscriptions related to your business. Even certifications and licensing fees required for your profession are deductions.
7. Employee Salaries & Benefits
Did you know that if you have employees, the costs of compensating them, including benefits, can be deducted? This includes employee wages and salaries, bonuses, and commissions. Also included in these deductions are health insurance and retirement contributions, workers’ compensation, and other employee benefits.
Conclusion
Many small business owners overlook deductions that could save them hundreds or even thousands of dollars. By keeping track of your expenses and consulting a tax lawyer, you can ensure that you take full advantage of all the deductions available to you. Review these potential deductions before you file your taxes to see if you qualify. Schedule a meeting with G. Deffenbaugh at Colorado Trusts & Taxes for all your tax-related questions.