Reducing your business tax liabilities means keeping more money in your business, so operations remain seamless, and you’ve got money to grow. While it’s always a good idea to consult with a business tax attorney or accountant to make sure you’re using every deduction you’re entitled to, we’ve gathered a few of the most common deductions businesses can use, including some of the ones most often overlooked. Keep these in mind as the year wraps up, so you can gather any necessary supporting documentation and have it ready when you prepare your taxes.
Whether you lease or own your vehicle, you’re likely entitled to claim some or all the expenses associated with it. Oftentimes, business owners who travel for work will utilize the standard mileage rate, which is updated by the IRS regularly. If you don’t travel much, you might be better off breaking down individual expenses, such as preventative maintenance, insurance, and fuel. If you’re not sure which method to use, crunch the numbers both ways to see which way maximizes your deduction. Remember, the choice you make at the start of the year will be the one you have to stick with throughout it.
2. Bad Debts
If you lost money due to unpaid debts from your customers, you can offset some of the cost with a deduction. You will have to prove that you had a relationship with the debtor, that you tried to collect, and that you sustained a loss due to the non-payment. These details are easy to prove if you’ve been working with Interstate Capital because you’ll have a paper trail of the collection efforts.
Virtually any asset that your business uses for more than a year and loses value or wears out may qualify you for a depreciation deduction. Common items include vehicles, mobile devices, computers and other tech as well as machinery.
4. Employee Compensation
Payments you make to employees and contractors to whom you provide a W-2 or Form 1099 to are deductible as well. Consider all forms of payment, from salaries through bonuses and even health insurance.
5. Home Office
If you work from home, you may be able to claim your home office as well. However, the key to this is that you must have a dedicated space for work and you must use the space regularly for work. You can’t count your dining room as an office, even if you legitimately sit at your kitchen table every day for work.
Most insurance expenses can be deducted. The few exceptions to this are business interruption insurance and life insurance if you’re the beneficiary.
Any type of debt your business pays on, from credit cards to bank loans, likely includes interest payments. You can deduct those, too.
8. Pension plans
Contributions made for the benefit of yourself and employees can be deducted. If you pay trustee fees separately, include those, too.
9. Professional Fees
Funds you pay to lawyers to accountants and even your tax preparation fees will qualify you for deductions.
If you’re referring to space in your own home, it’ll go under the home office deduction, but if you rent space elsewhere, that will qualify as a separate deduction. Be mindful you’re claiming a fair going rate, and not an excessively high amount if you’re renting from someone you know, to avoid having the IRS disallow the deduction. It’s worth noting rental equipment and land qualify for deductions, too.
It probably seems a little odd to claim taxes as a tax deduction, but it is legit. This includes things like sales and excise taxes for business-related items, real estate taxes, and state/ local government taxes on personal property.
12. Travel and Meals
“Business-related,” “ordinary,” and “necessary” are the three key words here. Virtually any expense which directly involves your business and requires you to be away from home qualifies. Items for your employees under the same circumstances qualify, too. That means your hotel, vehicle, fuel, parking fees, tolls, and food should be included in deductions if you travel for work. Deductions for entertainment used to qualify as well, though this is rarely the case now, so be especially wary of trying to deduct things like sports tickets or retreats, even if business was conducted during the event, without talking to a tax specialist first.
Keep Cash Flowing with Interstate Capital
Working with Interstate Capital may make it easier for you to claim deductions on things like bad debts. Plus, your factoring fees are generally tax-deductible, too. It can help keep cash flowing into your business, whether you need an injection so you can cover a big tax bill or you’ve minimized your tax liabilities and are using the cash to grow. To find out what your business qualifies for, get a free funding estimate now.