Just because the IRS can rule over your life… at least around tax season, doesn’t mean you should let yourself (and your small business) get cheated out of breaks that are there for a reason. You have to know what is going on to benefit from those credits and breaks and use them accordingly. Learn about and utilize every deduction that you can. No, it isn’t necessarily a fun way to spend your time but in the long run it can really give you a break maybe you didn’t know you needed.
Home Office Deduction – While some people may assume that using a “home office” deduction is just an invite to the IRS for an audit, this is not necessarily so. The trick is to use the same terms that the IRS uses. This is kind of basic, but essentially a home office is a room or area that is for your work purposes only. For example, if there is only one computer in the house, the IRS will assume that the computer is also for personal use. This is where it gets tricky. The area does not have to be an entire room but can also be a part of a room. You would have to measure your work area and divide by the square footage of the entire home. That percentage is the fraction that your “home office” related expenses can be deducted, including rent, insurance and utilities. This can also lead to a Home Office Supply Deduction. Whether or not you decide to use the Home Office Deduction, you can save your receipts and deduct your business supplies. Hint hint: This can also be used for software purchases and warranties.
Health Care Tax Credit – Available to small business with less than 25 employees who are paid an average of $50,000 or less and who pays at least half of their employees’ health care benefits, this credit can cover up to 50% of what you pay for your employees’ benefits.
General Business Credit – If your business is required to pay the Alternative Minimum Tax, things have changed a bit. There are about 30 General Tax Credits for your business but if you are required to pay the AMT, you can apply these credits to both the regular structure AND your AMT bill.
Self-Employed Insurance Deduction – If you are self-employed and pay for your own health insurance, you can now deduct insurance costs from both your business profits and income tax.
Advertising and Promotion Deductions – Any ordinary advertising of your goods and services (business cards, billboards, etc.) can be deducted as a current expense. Also, promotions such as sponsoring a team can be deducted as long as it is directly related to your business and the sponsorship and can be proven.
Miscellaneous Deductions – These are deductions that can sometimes be overlooked by small business owners and it’s important to keep an eye out for them:
- Bank service charges and Credit bureau fees
- Business association dues
- Business gifts
- Business-related magazines and books
- Coffee or beverages used for your “office”
- Consultant fees
- Office supplies
- Online computer services (related to your business)
- Parking and meter fees
- Petty cash funds
- Postage and shipping
- Promotion and publicity
- Seminars and trade shows (really any type of business-related education)
- Taxi or bus fare (most business-related transportation)
- Telephone calls away from the business
**Just because you do not have a receipt for every transaction doesn’t mean it cannot be deducted, so remember to keep a log of the small things as well as the larger items.
I am sure I don’t have to tell you how much every dollar helps. Your taxes can be scary, but paying someone else to know your business just isn’t smart business. Even if you ultimately seek outside help, you want to know what you should be doing to help them help you. Be smart and knowledgeable when it comes to your taxes, because ignorance is expensive.