Almost every small business owner knows that common tax deductions have tremendous value. But too often, people aren’t aware of all the small business tax deductions available to them.
As an experienced CPA, I have seen countless businesses miss out on valuable deductions because of a lack of know-how or because owners don’t maintain detailed records throughout the year, limiting their options when tax season rolls around.
The good news is, it’s never too late to get on top of deductions.
Listen: Common Tax Deductions Add Up
Deductions can be the pivotal component that makes your business profitable. On the other hand, failing to incorporate deductions for travel expenses, meals, supplies, depreciation, and health care can sink a business. Or at least cause them to list. However, businesses that create a comprehensive tax plan can ensure that they receive proper tax deductions.
Small businesses already operate with razor-thin margins, so make success easy. Here are the top 5 common tax deductions for small businesses.
1. Deduct Home Office Expenses
There are two ways to write off home office expenses — the “simplified method” and the “regular method.” Both will reduce tax liability for qualified individuals who conduct business from a dedicated home office.
You can also save on office furniture and supplies — paper, toner, office chair, or anything else that’s essential. Trust me; the small things add up.
The Simplified Method
The simplified home office deduction is best for small businesses without complex financials and asset holdings.
Here’s how it works:
- Take the square footage of your home office.
- Multiply the total square footage by $5, or think of it as $5 per square foot of office space.
Business owners can deduct a maximum of 300 sq. ft. or accept a lump sum of $1,500.
The Regular Method
The regular method is exceedingly complicated but also more flexible. It’s a common tax deduction for businesses with a constellation of expenses: mortgage interest, insurance, utilities, repairs, and depreciation.
What is a Home Office?
A home office is a dedicated space for business and must be used exclusively for business purposes. Avoid questionable deductions such as living rooms, bedrooms, or shared spaces.
If you operate a business from home, you can easily include home office & office supplies as common tax deductions for your business. Remember that what you spend on your home office and supplies is tax-free, as well.
2. Track & Deduct Business Travel Expenses
The federal government wants tax revenue. Small businesses rely heavily on travel to connect with prospects and explore money-making opportunities. That’s why federal law and regulation offer deductions for work-related travel.
Business travel expenses include airfare, car rentals, car mileage, and meals. Take advantage of this common tax deduction by meeting just a few conditions.
Travel must be:
- Necessary for work
- In a location outside your business’ tax home
- Last two days or more
You can even deduct the cost of dry cleaning or laundry. The IRS has a list of available travel-related deductions here.
Write off the cost of airfare, car rentals, and other expenses that are essential for facilitating business travel.
3. Use Depreciation for Major Purchases
Depreciation is the process of deducting the cost of a business purchase over several years instead of all at once. The number of years you can use this deduction is based on a purchase’s “useful life” — how long it can be used before its value is fully depreciated.
Depreciation is more complex than other common tax deductions for small business owners, so we suggest you pursue it with the help of a CPA
Some purchases commonly depreciated by small businesses include:
- Real estate
- Rental property
Save money on big-ticket purchases like real estate or expensive machinery by deducting the amount of its depreciation each year.
4. Deduct Health Care Expenses
Small business owners can deduct group health, dental, and vision insurance premiums as business expenses. Also deductible are medical expenses like prescriptions and co-pays for visits to the doctor’s office.
For those who are self-employed, health insurance costs are 100% deductible for themselves, their spouse, and dependents.
Deduct the cost of health insurance premiums and other medical expenses.
5. Log & Deduct Food & Beverage Expenses
Entertaining clients can be a big part of running a small- or medium-sized business. Fortunately, you can deduct 50% of the costs of food and beverage for qualifying business meals
The business meal category is fairly wide-ranging. It includes buying dinner for employees who are working late, for example. Additionally, meals purchased for an office party are 100% deductible.
If you take a client out to dinner or provide food for your employees (in some situations), the cost can be written off.
Need Help With Common Tax Deductions? Call Us.
Remember, deductions aren’t a one-time thing. To maximize their value, you need to pay attention and keep careful records year-round.
For a small business with a handful of employees who all wear many hats, that may just not be possible. An accountant will help you stay on top of common tax deductions and less common ones, too. If you wanna look at how an accountant can help, look at our other blog about small business tax credits.
If your business needs help maximizing small-business tax deductions, contact Jeremy A. Johnson, CPA.
Jeremy A. Johnson, CPA