It’s probably a safe bet that you have never uttered the phrase, “I can’t wait to do my taxes!”
If you’re a small business owner, the odds are likely even worse, but that’s OK because that makes this blog a really nice surprise for you.
However, tax time is your opportunity to make the best case for keeping the most of your hard-earned money. Especially if you own a business, there is money to be reclaimed by every taxpayer, if you know where to look. Fortunately for you, we won’t make you thumb through the 73,000-plus pages of the tax code. (Fun fact: this is 187 times longer than it was in 1913; well maybe that’s more horrifying than fun.)
I have often told clients about tracking expenses on things like cell phones, supplies and other expenses because they are qualifiable dedication, and the reaction is always “I had no idea!” That’s OK, it’s what I’m here for, and if the news makes you happy and I end up looking like a genius, my day is made.
So, with the tax deadline looming in about a week – surprise, it’s been extended to April 18th this year – you won’t have time to read the tax code anyway. Instead, let’s hit the most-often overlooked or misunderstood tax deductions, with the strong suggestion to employ a good tax accountant (who may have actually read the tax code).
- Home office – even if it’s not an entire room dedicated to the sole purpose of your eventual domination in your chosen field, there’s a formula that you can apply to the space where you do business. However, be careful – if it’s on a computer that everyone uses and in a room that is where your parties are thrown, the IRS may shake its head at that. Feeling brave or curious? Read more about what the IRS says about the business use of your home.
- Office supplies: here too, be careful. While you might overlook the multitude of purchases made for your home office that are deductible, keep them separate from your kids’ school supplies. Receipts can be tucked into an envelope and added up easily every quarter, or for the year end.
Electronic devices like smartphones and tablets can also carry deductions. More about that from the IRS (form 946) to clarify if you’re literally holding money in your hand.
- The benefits of joining: Dues for the chamber of commerce, the weekly networking group that has a $5 fee for the door, a monthly fee for the online stock image subscription: all qualifiable for deductions as a business. The same goes for expenses on business-related classes and education.
- Mileage/vehicle expenses: No matter the car you drive, if you drive it to meet a client, attend a business seminar, or are pitching a new client at their office, that’s money in the bank. You have a couple of options – keep track of the miles you drive for business (the 2015 calculation is 57.5 cents per mile), add parking fees, tolls and other related expenses, and then use it to arrive at your total deduction. The other option is to compare your business use against your total driving and deduct that portion of your auto-related expenses. Depreciation, and incidentals along your travels like lodging can also put more back in your pocket. Read more in the IRS’s Publication 463.
- Health Insurance: For small businesses, health insurance premiums and related expenses are wholly deductible; couple that with the fact that you can be penalized for not carrying health insurance, and it’s a win-win. I’ve often heard from clients that they didn’t think they could get insurance if they weren’t an LLC. You can, and you should have insurance is the short answer. This is also an expense that I don’t allow whining about. If your business is that important, it needs protecting. End of discussion.
- Hired hands: If you have employees, that’s one thing, but even when you don’t, you are likely paying someone, somewhere to help you conduct business. Attorneys, marketing professionals, printers to get you materials, and that tax professional we recommended you have all incur expenses that are deductible
Tax time can therefore be looked at as a treasure hunt, a reward for your efforts in the past year that allow you to take back a decent portion of what Uncle Sam says you owe.
Ultimately, the best advice to start with is when in doubt, track the expense. I often preach about saving yourself time with automated ways to track expenses because you just are too busy to do it all, however, even a shoebox full of receipts beats nothing in your hand. The worst that a tax preparer will tell you is no. It’s far better than to think about the money you could have saved, rather than giving it away needlessly.